In October, oil prices strongly decreased at around $10.5/b. In particular, Brent North Sea quality started the negotiations pricing at $84.95/b and closed at $74.59/b, while West Texas Intermediate grade opened the transactions trading at $75.45/b then, closing at $64.98/b.
On October 3rd, prices reached their 4-year high, respectively quoting at $85.92/b and at $76.22/b, in the wake of a shrinking spare oil capacity and then, they steadily dropped.
This oil plunge was the result of several factors as followed:
1. Supply side. According to the data published by the Energy Information Administration, U.S. commercial stocks increased from 395,989,000 barrels on September 21st to 426,004,000 barrels on October 26th (publication date, 5 days after), especially because refinery utilization is slowdowning do to maintenance. It was the longest run of inventory gains since early 2017 (6 straight weeks in a row);
2. Demand side. Based on the figures provided by the Oil Monthly Report on October 12th, the International Energy Agency cut estimates for the 2018/19 oil demand growth by 110,000 b/d to 1,300,000 b/d and 1,400,000 b/d respectively, because of the rising threats over global economy (trade war, tariffs, high oil prices, the appreciation of the dollar that could affect emerging countries);
3. Finance. In accordance with the U.S. Commodity Futures Trading Commission data, the net long position – that is the difference between the bullish and the bearish bets — fell by 14% in the week to October 16th for both oil qualities.
However, the strongest indication that affected the bearish barrel trend was given by Saudi Arabia Oil Minister, Khalid al Falih, who stated on October 23rd that OPEC and its allies are in a “produce as much you can mode”.
In the meantime, Kingdom’s output surged to approximately 10,700,000 b/d – near to an all-time high – overwhelming supply disruptions occurred in Venezuela and Iran, whose oil exports decreased to 1,800,000 b/d in September (-26%).
In September, barrel prices significantly rose at around $4/b. In particular, Brent North Sea oil quality started the negotiations at $78.01/b and closed at $82.75/b, while West Texas Intermediate opened the transactions at $69.64/b, closing at $73.43/b.
Especially, during the first week, both oil benchmarks touched their monthly low respectively, pricing at $76.71/b on September 6th and at $67.45/b on September 7th due to signs that the global market was comfortably supplied despite deepening losses in Venezuela and Iran. Then, oil prices marked a bullish trend, because of the following issues:
1. According to the Energy Information Administration data, U.S. commercial stocks decreased from 401,490,000 barrels on August 31st, to 394,137,000 barrels on September 14th, the lowest since February 2015;
2. After having hit a new record high at around 11,100,000 b/d, the U.S. unconventional oil output is forecast to stop increasing. The EIA slashed the estimates for the 2018/19 production growth;
3. The U.S. sanctions imposed to Iran in May 2018, which are still decreasing the Iranian oil exports, despite the fact that they will not come into force until November 4th.
In the wake of the OPEC + meeting held in Algiers on September 22nd/23rd, the European and Asian benchmark and the American grade reached their 4-year high on September 28th because the OPEC + group – led by Saudi Arabia and Russia – decided not to increase oil supply without paying any attention to the U.S. President numerous suggestions to do so.
Furthermore, the repeated threats made by Donald Trump towards Iran during his speech at the United Nation General Assembly on September 25th spurred a jump in the barrel price as well.
In August, oil prices surged. In particular, Brent North Sea quality opened the negotiations at $72.53/b and closed at $77.8/b, while West Texas Intermediate began the transactions at $67.79/b, concluding at $70.01/b.
During the first half of the month, both Brent and WTI traded close to a 10-week low, because of the following reasons:
1. China’s retaliation against the U.S. latest economic measures increased tensions between the two economic superpowers, which can affect future oil demand;
2. The strong devaluation of the Turkish currency that could lead the country to a recession, which may affect oil demand too;
3. According to the Oil Monthly Report published by the International Energy Agency on August 10th, “concerns about the stability of oil supply have cooled down somewhat, at least for now. We have seen increases in production, mainly in Saudi Arabia and Russia and a partial, but fragile recovery in Libya”.
4. Based on the U.S. Energy Information Administration, U.S. crude stockpiles increased by 6.810.000 barrels, moving from 407.389.000 barrels to 414.194.000 barrels.
Especially, the European and Asian benchmark lowered to $70.83/b on August 15th, whereas the American grade touched $64.83/b the day after.
On the contrary, during the second half of August, barrel prices strongly increased due to the subsequent issues:
1. The fall in Iranian exports, which decreased from 2.320.000 b/d in July to 1.680.000 b/d (Platts preliminary estimates) in mid-August, in addition to the strikes at Total’s fields in the North Sea that could also curb supply;
2. The fall in U.S. commercial stockpiles, which decreased from 414.194.000 barrels to 405.792.000 barrels
3. The depreciation of the dollar, which makes dollar-priced assets more attractive for the investors. In particular, the American currency depreciated over the euro, moving from 1.1321 €/$ on August the 15th to 1.171 €/$ on August 28th.
With regard to the Iranian oil exports, it is important to highlight that India’s imports from the Persian country decreased from 700.000 b/d in July to the current 200.000 b/d, because of fears regarding the so-called U.S. secondary sanctions.
On the contrary, China – which is the first Iranian oil purchaser (India was the second) – did not reduced at all its imports from Teheran, whereas the first oil delivery to China through the petro-yuan settlement is set for September.
In July, barrel prices significantly decreased. In particular, Brent North Sea quality opened the negotiations at 77.4 $/b and closed at 74.2 $/b, while West Texas Intermediate opened the transactions at 74.03 $/b, closing at 67.45$/b.
Both the European and Asian benchmark, and the American grade reached their monthly high on July 10th, respectively quoting 78.88 $/b and 74.16 $/b (close to the highest in three years). As highlighted by the International Energy Agency, this could be due to fears that the supply increase decided by the OPEC + group on June 23rd would not be enough to counterbalance the losses from Venezuela and Iran. In fact, according to IEA, Venezuela’s production capacity could drop by 1,000,000 b/d by the end of 2018 (- 40%). Parallely, Iranian shipments to Europe have already fallen by 50%, because of U.S. sanctions.
Furthermore, on July 11th, geopolitical tensions rose when U.S. President, Donald Trump, with regard to natural gas supplies, stated that Germany is “captive” to Russia. In reality, Germany isn’t any more dependent on Russian gas than it was before. Nowadays, the Russian Federation accounts for approximately 40% of Germany’s gas imports, but the share was even higher during the Cold War (West Germany).
In addition, the United States imported an average of 384,000 b/d of crude oil and products (3.8% of total imports) from Russia in 2017.
Based on Oilprice.com, assuming an average price of $50/b, it means that the U.S. spent about $7 billion on Russian oil in the previous year.
Halfway through July, both oil quality prices decreased, respectively lowering to 71.6 $/b and 67.64 $/b on July 17th, because of the following issues:
1. Libya, Nigeria and Canada were able to increase their output;
2. The trade war between the U.S. and China might negatively affect oil demand during the second half of the current year.
At the end of the month, the price-gap between Brent and WTI increased by more than 6.5 $/b probably because Saudi Arabia’s suspension of shipments through a key Red Sea transit route. This affected the European and Asian benchmark more than the American blend.
After the withdrawal of the United States of America from the Iran nuclear deal, which was reached in 2015, U.S. President D. Trump, on July 31st, stated that he would be willing to meet Iranian President, Hassan Rouhani, with “no preconditions”.
In the wake of the Trump/Putin meeting, which occurred in Helsinki in mid-July, the impression is that geopolitics could have a bearish effect on barrel prices during the second half of 2018. “I would certainly meet with Iran if they wanted to meet”, Trump stated on July 30th, during a joint press conference at the White House with Italian Prime Minister, Giuseppe Conte. Trump was also quoted saying, “I don’t know if they’re ready. They’re having a hard time”.
Despite the agreement to raise oil output by 1,000,000 b/d achieved by the so called OPEC+ group during their meeting in Vienna on June 22nd/23rd, barrel prices increased. In particular, WTI benchmark gained at around $7.5/b.
Brent North Sea quality opened the negotiations at $76.76/b and closed at $77.75/b, while West Texas Intermediate opened at $65.75/b, closing at $73.34/b (the highest since 2014). Both the European and Asian benchmark and the American grade reached their monthly low on June 18th, respectively quoting $73.03/b and $64.15/b.
Presumably, the oil production will increase by 700,000 b/d, because some OPEC members as Iran, Venezuela, Libya – which output decreased from 1,000,000 b/d to 750,000 b/d in May – and Nigeria will not be able to increase their extractions due to issues related with sanctions, economic crisis and geopolitical turmoil.
In reality, the current barrel output is lower than that fixed in November 2016, so the 1,000,000 b/d increase would approximately bring it back to the agreed cap.
The increasing in price by the two most important global oil benchmarks has been characterized by a different intensity. In fact, WTI strongly rose because of the following reasons:
1. The U.S. commercial stocks bearish tendency. In particular, U.S. crude inventories dropped from 436,584,000 barrels on June 1st to 416,636,000 barrels on June 22nd.
“The spread between WTI and Brent is shrinking as OPEC’s output increase is having a bigger impact on Brent than WTI”, said Hong Sungki, a commodities trader at NH Investment & Securities Co. “Cushing stockpiles are quickly withdrawing as the U.S. summer driving season boosts refiners’ demand for crude, supporting WTI prices”;
2. In Canada – owing to a failure in the Syncrude facility, which is linked to the Cushing oil stock terminal in Oklahoma, the most important WTI delivery point in the United States of America – supply could fall up to at least 360,000 b/d, till next August.
Before the OPEC+ meeting, Iranian Oil Minister, Bijan Namdar Zangeneh, said it was likely to reject any agreement that raised output from the group. Taking into account that Iran will be unable to increase its extractions in the coming months, probably his aim was to pursue the other OPEC + members not to boost their per head production above the 2016 November limits thus, avoiding to grab Iran’s oil market share. However, from a strictly political point of view, Iran may only rely on Russian Federation’s support – which output, according to Interfax, already reached 11,090,000 b/d during the first week of June, 143,000 b/d higher than the cap agreed with OPEC in late 2016 – while the United States of America are explicitly pushing Saudi Arabia to boost its output by 2,000,000 b/d.
Probably, U.S. President, Donald Trump, who seems to be so eager in resolving a range of diplomatic disputes with his Russian counterpart, Vladimir Putin, will face the above mentioned issue during the bilateral meeting that will take place on July 16th, in Helsinki.