Oil Market Review

Monthly Review

  • August 2019

    In July 2019, barrel prices slightly decreased. In particular, Brent North Sea quality opened the listings at $65.93/b and closed at $65.18/b, while West Texas Intermediate started the quotations at $59.60/b, closing at $57.89/b.

    On July 11th, both qualities reached their monthly high – respectively pricing $67.58/b and $60.84/b – due to the fall in U.S. inventories, which dropped from 468,491,000 barrels on June 28th to 458,992,000 barrels on July 5th. Furthermore, hurricane Barry hit the Mexican Gulf simultaneously, decreasing the oil output in the region by more than 600,000 b/d, approximately one third of the entire Gulf production.

    On July 18th, both the European and Asian benchmark, and the American grade lowered to their monthly minimum, respectively trading at $61.66/b and at $54.79/b, due to fears that global oil demand growth will slow down in the second half of the current year.

    During the last ten days of July, barrel prices increased again as a consequence of three concomitant factors:

    1. The rising tension in the Persian Gulf, from which transit 18,500,000 b/d of oil and petroleum liquids;

    2. A further fall in U.S. commercial oil stocks, which diminished from 455,876,000 barrels on July 12th to 445,041,000 barrels on July 19th;

    3. On July 31st, for the first time since 2008, U.S. Federal Reserve cut its interest rates by 25 basis points, bringing them in the range 2-2.25%, with the aim of supporting U.S. economy thus, global oil demand too.

    In June 2019, despite U.S. sanctions, China imported 208,205 b/d from Iran, almost 60% less in comparison with the previous. However, especially from a geopolitical point of view, the fact that the Sino-Iranian energy cooperation is still in place represents a fundamental issue in order to maintain the current barrel price stability.

    by Demostenes Floros
  • July 2019

    In June 2019, barrel prices strongly increased at around $5.5/b. In particular, Brent North Sea quality started the negotiations at $61.21/b and closed at $66.71/b, while West Texas Intermediate opened the quotations at $52.97/b, closing at $58.20/b.

    Both the European and Asian benchmark and the American grade rose due to the following economic and geopolitical factors:

    1. After having reached their lowest level since 1990 at 485,470,000 barrels on June 7th, U.S. stocks further decreased to 469,576,000 barrels on June 21st (-15,890,400 barrels), the biggest decline that has occurred in American supplies since September 2016. In the wake of this data published by the Energy Information Administration on June 26th, WTI gained its monthly high, trading at $59.70/b;

    2. After having reached its record output at 12,400,000 b/d on May 31st, U.S. extractions decreased to 12,100,000 b/d on June 21st;

    3. On June 20th, the Iranian military shot down a U.S. drone over the Strait of Hormuz, in the Persian Gulf. According to Tehran, the drone violated Iran’s airspace. On the contrary, Washington claimed it was in international air space;

    4. In May 2019, the Russian Federation decreased its extractions to 11,110,000 b/d, bringing its output under the level agreed on with the OPEC+ in December 2018 (11,180,000 b/d). To be more precise, Russian supplies transported through the Druzhba pipeline, which connects Russia with central Europe, have reduced since April 2019 because of the contaminated oil.

    On June 29th, U.S. President, Donald Trump, met his Chinese counterpart, Xi Jinping during the G20 in Tokyo. With regard to the trade deal between the two economic superpowers, Trump and Xi decided to reopen the dialogue. If they obtain an agreement in the course of the next weeks, it will certainly have a positive impact on oil demand.

    The positive correlation that also exists between Chinese oil demand trend and Brent prices (estimated at 79%, ceteris paribus), in addition with the OPEC+ cuts roll over established in Vienna on July 1st 2019, will presumably support barrel prices in the second half of the current year.

    by Demostenes Floros
  • June 2019

    In May 2019, oil prices strongly decreased due to the commercial tensions between the United States of America and China, which could affect global oil demand. “It seems like we’re going to be entrenched in a trade war, which is really going to hurt demand for crude oil”, said commodity manager Tariq Zahir. In particular, Brent North Sea quality opened the listings at $72.03/b and closed at $64.47/b (-10% month-over-month), while West Texas Intermediate crude started the quotations at $63.68/b, closing at $53.4/b, the lowest level since February 12th (-16% m-o-m).

    On May 23rd, U.S. stockpiles increased by 4,740,000 barrels to a total of 476,775,000 barrels. According to the U.S. Energy Department data, this is the highest level since July-2017. In addition to the U.S. record output of 12,200,000 b/d, the U.S. crude inventories have been determining the current $11/b Brent/WTI spread.

    The compliance to the OPEC+ agreement signed on December 7th 2018 (-1,200,000 b/d) reached 168% in April 2019 in comparison with 138% gained a month earlier. For this reason, during the next meeting in Vienna on June 30th 2019, oil producers could decide to eliminate the over compliance, maintaining the stipulated output deal levels and prolonging it in the second half of the year.

    In such a case, Saudi Arabia, the OPEC leader, and the Russian Federation, the leading non-OPEC producer, may achieve a viable political balance.

    by Demostenes Floros
  • May 2019

    In April 2019, barrel prices rose, reaching a six-month-high. In particular, Brent North Sea quality opened the listings at $69.22/b and closed at $71.68/b, while West Texas Intermediate crude started the quotations at $61.74/b, closing at $63.56/b.

    On April 24th, the European and Asian benchmark gained its maximum at $74.59/b, whereas the day before the American grade topped its record at $66.09/b. Oil prices increased because U.S. President, Donald Trump did not roll over Iran sanction waivers before they expired on May 2nd 2019. The waivers were granted on November 5th 2018 to eight countries: China, India, South Korea, Japan, Taiwan, Italy, Turkey and Greece.

    Moreover, the oil market was characterized by other bullish factors such as:

    1. The escalation of the Libyan war;

    2. The OPEC+ cuts established at the end of 2018 (-1,200,000 b/d);

    3. The U.S. sanctions imposed on Venezuela;

    4. The temporary reduction of the U.S. tight oil output by 100,000 b/d in mid-April.

    The slight fall in oil prices occurred at the end of the month was due to the surge in U.S. commercial stocks from 455,154,000 barrels to 460,633,000 barrels (+ 6,860,000 barrels).

    In the wake of this latest data publication, Carsten Fritsch, financial analyst at Commerzbank, said, “The situation in the oil market has calmed down. Apparently, the global oil market is sufficiently supplied”. However, as was previously stated by Olivier Jakob, market strategist at Petromatrix, the decision to let the waivers expired was a “bullish surprise for the market”.

    by Demostenes Floros
  • April 2019

    In March 2019, barrel prices increased by approximately $3.5/b. In particular, Brent North Sea quality opened the listings at $64.99/b and closed at $68.36/b, while West Texas Intermediate crude started the quotations at $56.2/b and closed at $60.22/b. Both oil closing prices traded near their four-month high.

    Brent and WTI rose steadily until March 20th 2019 – respectively quoting $68.3/b and $60/b – due to U.S. oil stocks decreasing from 449,072,000 barrels on March 8th 2019 to 439,483,000 barrels on March 15th 2019. They then slightly retreated in response to the dollar appreciation (€/$ 1.1218 on March 28th), before increasing again in the wake of Alexander Novak’s statements. Particularly, Russia Energy Minister said that his country would have reached its share of cuts by early April (-228,000 b/d).

    Since the beginning of 2019, the European and Asian benchmark and the American blend have respectively rose by 25% and 30%, as a consequence of the OPEC+ cuts, as well as supply disruptions in Venezuela (-142,000 b/d in February 2019) and Iran, which have countered the growing American tight oil production (12,100,000 b/d since February 2019).

    According to Goldman Sachs bank, “the latest Brent rally has brought prices to our peak forecast of $67.5/b, three months early. Resilient demand growth [estimated to surge by 1,450,000 b/d in 2019] and supply outages could push prices up to $70/b in the near future. Supply loses are exceeding our expectations, demand growth is beating low consensus expectations with […] net long positioning still depressed”.

    This situation may potentially be a perfect bullish storm unless next May U.S. President, Donald Trump, prolongs purchase waivers over the Iranian oil, which is currently under U.S. sanctions.

    by Demostenes Floros