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
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
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
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
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
In February, oil prices rose. In particular, Brent North Sea quality started the negotiations at $62.91/b and closed at $66.45/b, while West Texas Intermediate opened the transactions at $55.67/b, closing at $57.25/b. Since the beginning of 2019, barrel prices have surged by approximately 26%.
On February 11th, both crude qualities lowered to their monthly minimum, Brent pricing at $61.97/b and WTI trading at $52.82/b, because U.S. commercial stocks increased from 445,944,000 barrels on January 25th to 454,512,000 barrels on February 15th.
On February 20th, both the European and Asian benchmark, and the American grade reached their monthly high, respectively quoting at $67.14/b (the highest in three months) and $57.27/b, due to the following reasons:
1. In January 2019, Saudi Arabia extracted 10,200,000 b/d (it was 11,090,000 b/d in November 2018), cutting its output by an amount that was higher than that decided during the OPEC Plus meeting in Vienna at the end of 2018;
2. The signals of a thaw in U.S.-China trade tensions that would have a positive impact on global oil demand.
During the last week of February, barrel prices firstly decreased, because U.S. oil production topped the record of 12,100,000 b/d, while President, Donald Trump, tweeted “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!” However, Saudis oil Minister, Khalid Al Falih, stated on February 12th that his country would have decreased its output to 9,800,000 b/d in March. At the same time, the Minister added that Saudi Arabia would reduce its exports to 6,900,000 b/d (they were 8,200,000 b/d in November 2018).
“OPEC Again Faces Choice Between Trump’s Wrath and Oil Slump”, entitled Bloomberg on February 26th.
Finally, barrel prices closed on the rise, because U.S. stocks dropped by 8,647,000 barrels to 445,860,000 barrels.by Demostenes Floros
In January, barrel prices strongly increased because OPEC+ members have been starting to implement the Vienna agreement reached on November 30th 2018. During the meeting, oil producers decided to cut production by 1,200,000 b/d in the first half of 2018, with the aim of removing the oversupply in the oil market.
In the first month of 2019, Brent North Sea quality opened the quotations at $54.75/b and closed at $61.06/b, while West Texas Intermediate opened the listings at $46.6/b, closing at $54.15/b. Both the European and Asian benchmark and the American grade reached their monthly high on January 21st – respectively, quoting $62.83/b and $54.19/b – even in the wake of the political crisis, which has sparked in Venezuela, where the world’s biggest crude reserves are held.
In addition to the OPEC+ deal and the turmoil in the Latin American country, another bullish factor was a slight depreciation of the dollar and the impression that the Federal Reserve will not implement a strong tightening monetary policy in 2019 as it was previously supposed.
At the same time, it has to be taken into account that the oil market has been characterized by bearish factors too. Especially, as follows:
1. On January 11th 2019, the U.S. producers extracted the record of 11,900,000 b/d. Nevertheless, there are signs – especially, the active rigs trend – that U.S. tight and shale output will slow its growth in 2019;
2. In 2018, China’s economy is estimated to expand by 6.6%, which would be the slowest annual pace since 1990.
According to a report published by the International Monetary Fund on January 21st, world economy is estimated to grow by 3.5% in 2019 and by 3.6% in 2020. Those are respectively, 0.2% and 0.1% points below the previous forecasts issued in October 2018 and the second downturn revision in three months. “Global growth is expanding at a healthy rate, but we are seeing a slowing momentum”, the IMF’s head of research Gita Gopinath said, adding that there were “many important downside risks to the global economy”.
If global growth pose a threat to the oil demand, the new U.S. sanctions imposed against Petroleos de Venezuela SA on January 29th will bring another supply risk to the market, increasing its volatility.by Demostenes Floros
In December, oil prices strongly decreased at around $8/b in the wake of the global financial turmoil. In particular, Brent North Sea oil quality started the negotiations at $61.91/b and closed at $54.15/b, while West Texas Intermediate grade opened the quotations at $53.35/b, closing at $45.67/b. After the Federal Reserve announced the fourth hike of its interest rates in 2018, both the European and Asian benchmark and the American grade reached their minimum on December 24th. Especially, Brent lowered at $50.68/b – the lowest level since August 18th 2017 – whereas WTI reduced at $42.38/b – the minimum price since August 10th 2016.
Furthermore, during the second half of December, barrel prices diminished due to the following factors:
1. Thanks to the fracking technique, the United States extracted 11,700,000 b/d that is a record
2. According to the International Energy Agency, OCSE commercial inventories increased by 5,700,000 barrels to 2,872,000,000 barrels in October, moving slightly above the last five year average level;
3. On December 19th, despite warnings from President Donald Trump who was concerned about a U.S. financial drop, FED rose the range of the overnight lending rate by 25 basis points from 2-2.25% to 2.25-2.50%. The effective risk of a financial bubble, in addition to continuing trade tensions between the United States of America and China, could lead to a weaker energy demand in 2019;
4. The role of finance. Some Hedge Funds have been increasing their bearish bets in particular, over the Brent benchmark.
On December 7th, the so-called OPEC+ group headed by Saudi Arabia and the Russian Federation decided to cut their production by 1,200,000 b/d for a period of six months, starting from January 1st 2019. If producing countries want to reduce the volatility that characterized the oil market during the second half of 2018, they must implement the pool agreement as soon as possible. The first 2019 oil data, which indicated that Saudi Arabia cut its exports by approximately 500,000 b/d to 7,253,000 b/d in December, seemed to confirm this aim.by Demostenes Floros
In November, oil prices carried on strongly with their bearish trend. In particular, Brent North Sea quality opened the listings at $72.75/b and closed at $59.23/b, while West Texas Intermediate grade started the quotations at $63.65/b, closing at $50.82/b:
In detail, barrel prices decreased due to the following reasons:
1. Demand side - The persistence of the trade war between the United States of America and China has been causing global economic growth to worsen;
2. Supply side - The United States exonerated eight countries from purchasing Iranian oil; among which is China, the current world leader of crude imports;
3. Supply side - The United States, Saudi Arabia and the Russian Federation opened their taps at full speed. Due especially to the fracking technique, the U.S. output reached 11,700,000 b/d in November, Saudi Arabia extracted 10,700,000 b/d the previous month, while Russia set a new post-Soviet record high of 11,410,000 b/d in October, up from 11,360,000 b/d in September;
4. Supply side - U.S. commercial stocks increased for the tenth straight week in a row, moving from 426,004,000 barrels on October 26th to 450,485,000 barrels on November 23rd (publication date, 5 days after).
“[Currently] the name of the game in the oil market is volatility”, International Energy Agency Executive Director, Fatih Birol, said at a conference in Oslo on November 20th. “And with the increasing pressure of geopolitics on oil markets that we are seeing, we believe that we are entering an unprecedented period of uncertainty”. A part from the decision that OPEC will take during the next meeting, scheduled in Vienna, on December 6th, this uncertainty will not probably disappear in the months to come. For the time being, oil prices trading at around $60/b are “absolutely fine” said Russian President, Vladimir Putin. Before U.S. President, Donald Trump, cancelled their meeting scheduled during the G20 in Buenos Aires, Putin had also previously stated, “if it’s required, we’re in touch with OPEC, we will continue this joint work”.by Demostenes Floros
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%).by Demostenes Floros
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.by Demostenes Floros
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”.by Demostenes Floros
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.by Demostenes Floros
In May, the oil price gap between the two most important benchmarks exceeded 11 $/b – that is a record high in three years – due to the Iranian crisis and the increase in U.S. tight production. In particular, Brent North Sea quality opened the transactions at $73.37/b and closed at $77.62/b, while West Texas Intermediate opened its negotiations at $67.47/b, closing at $66.69/b.
On May 23rd, the European and Asian benchmark reached $79.71/b, the highest since November 2014, whereas the American grade hit its maximum at $72.63/b on May 21st.
The strong bullish barrel trend, which occurred during the first three weeks of the month, was the direct consequence of factors dealing with geopolitics and oil supply:
1. On May 8th, the President of the United States of America, Donald Trump, declared the withdrawal of his country from the Joint Comprehensive Plan of Action regulating Iran’s nuclear activities and the reintroduction of sanctions against Teheran.
With regard to the crude market, it means that between 200,000 b/d and 1,000,000 b/d of Iranian oil exports are estimated, by analysts, to be at risk. At the moment, Iran is exporting 2,400,000 b/d;
2. On May 18th, for a second week in a row, the U.S. commercial stocks decreased from 435,955,000 barrels to 432,354,000 barrels;
3. At the same time, according to a Barclays report, the Venezuelan crude output may fall below 1,000,000 b/d in the coming months from an April level of 1,500,000 b/d;
4. On May 22nd, following the re-election of President Nicolas Maduro, D. Trump imposed sanctions over Venezuela too. In particular, the U.S. President prohibited the West financial system to purchase Venezuela’s debt, including Petroleos de Venezuela SA, the Latin American nation’s state-owned oil company.
During the last week of May, barrel prices decreased due to the following issues:
1. Hedge funds cut their net-long positions (purchase). According to the ICE Futures Europe, on May 21st, they reduced their Brent net-long positions by 3.7% to 548,555 contracts. At the same time, based on the U.S. Commodity Futures Trading Commission, the WTI net-long positions dropped by 6.2% to 385,283 agreements;
2. On May 25th, the U.S. crude inventories rose from 432,354,000 barrels to 438,132,000 barrels.
Based on the data provided by the International Energy Agency, OPEC and non-OPEC producers – after having started their supply cuts in January 2017 – achieved their goal to wipe out the global oversupply, with inventories falling by 1,000,000 stocks below their five-year average for the first time since 2014.
During the International Economic Forum (SPIEF) that took place in St. Petersburg from May 24th to 26th, the President of the Russian Federation, Vladimir Putin, stated, “we’re not interested in an endless rise in the price of energy and oil. If you asked me what a fair price is, I would say we’re perfectly happy with $60/b”. Anything above that price, “can lead to certain problems for consumers, which also isn’t good for producers. What will happen next will depend on the Iran nuclear deal and how that affects the world energy market”.by Demostenes Floros
In April, oil prices strongly increased in the wake of the OPEC/non-OPEC deal cuts. Especially, according to the International Energy Agency data, OPEC’s compliance reached a record of 164% in March compared with a revised (on the rise) 148% in February, while compliance for the 10 non-OPEC nations in the agreement rose to 85% last month from a revised 78% in February.
Brent North Sea quality opened the transactions at $68.18/b and closed at $74.70/b, whereas West Texas Intermediate grade started the negotiations at $63.62/b, closing at $68.45/b.
On April 6th, both the European and Asian benchmark and the American reference touched their monthly low, respectively pricing $66.89/b and $61.63/b, due to the dollar appreciation (1.2234 €/$).
On April 23rd, both blends reached their monthly high, Brent quoting $75.04/b – the maximum in four years – and WTI trading at $68.90/b – record high since December 2014 – after Iranian-backed Houthis in Yemen launched unsuccessful missile attacks against Saudi Arabia, while kingdom-led forces killed a senior leader of the so-called rebel group. At the same time, the global benchmark crude traded at a $6.14/b premium to June WTI, the widest since January 2018.
In April, the oil market was characterized, as both bullish and bearish factors.
Among the latter:
1. Based on the Energy Information Administration data, the U.S. oil output exceed 10,500,000 b/d (weekly figures);
2. In accordance with the EIA estimates, the U.S. crude oil stocks unexpectedly increased from 425,332,000 barrels on March 30th, to 429,737,000 barrels on April 20th;
3. The dollar appreciated. In particular, over the euro, the green banknote opened at 1.2308 €/$ on April 3rd and closed at 1.2079 €/$ on April 30th (the maximum appreciation being 1.2070 €/$ on April 27th).
With regard to the bullish factors, which overshadowed the bearish ones in determining barrel price trends, we put into light the following:
1. At the moment, oil inventories in OCSE nations are just 30,000,000 barrels above their five-year average. There were more than 300,000,000 barrels above the level when OPEC and non OPEC producers started their cuts, on January 1st 2017. The total amount of OCSE petroleum inventories decreased to 2,841,000,000 barrels;
2. The concerns about a possible trade war between the United States of America and China;
3. The double U.S. attack over Syria occurred on April 14th and 30th;
4. The tensions about the Iran nuclear talks after the meeting between the U.S. President, Donald Trump, and French President, Emmanuel Macron, on April 24th.
“The oil markets are very much linked to geopolitical tensions, especially if they’re in the Middle East, the heart of global oil exports”, Fatih Birol, the executive director of the IEA, said on Bloomberg television. “If tensions continue, they will continue to have an impact on the oil market and prices. Definitely, this will be a reason to push the prices up”.
Taking into account that the rebalancing of the oil market is close to be achieved, the historic deal that has been carrying on between North and South Korea may contribute to a de-escalation of the international tensions and hopefully of barrel prices too.by Demostenes Floros
In March, oil prices strongly increased (over 5%) in the wake of the OPEC/non-OPEC agreement cuts – with compliance reaching 138% in February – due to the global trade tensions raised between the United States of America, China and the European Union. Especially, Brent North Sea quality opened the negotiations at $64.15/b and closed at $69.67/b, while West Texas Intermediate grade opened at $61.34/b, closing at $65.14/b.
On March 23rd, despite the U.S. crude production reaching 10,407,000 b/d – a record high since 1970 – both Brent and WTI hit their monthly maximum, quoting $70.36/b and $65.80/b respectively. Three simultaneously factors could explain the bullish barrel trend, which occurred during the last 10 days of the month.
In particular, on March 21st:
1. After having surged by 5,220,000 barrels as refineries head into seasonal maintenance, the U.S. crude stockpiles unexpectedly fell by 2,622,000 barrels, the largest drop since early January 2018. According to the data provided by the Energy Information Administration, it decreased below the five-year average for the first time since 2014, On March 28th, U.S. crude inventories increased again by 1,640,000 barrels, widening the Brent/WTI price gap over $5/b;
2. The Governor of the Federal Reserve, Jerome Powell, stated, “The labor market has continued to strengthen and that economic activity has been rising at a moderate rate”. The U.S. Gross Domestic Product rose by +2.5% during the IV quarter of 2017. For these reasons, the FED decided to increase its interest rates by 25 basis points to 1.50/1.75%;
3. The meeting between U.S. President, Donald Trump, and Saudi Prince, Mohammed Bin Salman, sparked tensions concerning the possible renewal of the Iranian crisis. Based on FGE, any resumption of unilateral U.S. sanctions against Iran could lead to a drop in its oil exports by 250,000 b/d to 500,000 b/d by the end of this year. In addition, the nominee of John Bolton – who was against the Iranian nuclear agreement – as National Security Advisor had a bullish impact on prices too.
In February, OECD inventories dropped to around 44,000,000 barrels above the five-year average. In January 2017, at the beginning of the OPEC/non-OPEC deal, there were 293,000,000 barrels above that level therefore, at the current conditions, the oil market will be rebalancing between the II and the III quarter of 2018.
However, Bloomberg correctly pointed out “years of excessively high supplies mean that measure is itself higher than normal, while the patchy nature of data outside the OECD makes it difficult to get an accurate picture of the entire world market”.by Demostenes Floros
In February, oil prices strongly decreased by approximately $5/b. In particular, on February 1st, North Sea Brent and West Texas Intermediate quoted at $69.75/b and at $66.01/b respectively. On February 28th, the European and Asian benchmark priced at $64.66/b, while the American blend traded at $61.55/b.
On February 13th, both qualities reached their monthly low, Brent listing at $62.60/b and WTI at $58.87/b. This bearish trend was the consequence of the following economic and financial factors:
1. In the week ending January 30th, the short net speculative positions (selling) increased by 6.3% to 39,127 contracts;
2. During the first week of February, the total number of U.S. active rigs grew by 29 facilities;
3. On February 8th, the dollar appreciated over the euro, quoting at 1.2253 €/$;
4. On February 9th, the U.S. output surged to 10,271,000 b/d. International Energy Agency Executive Director, Fatih Birol, said “explosive growth” in U.S. oil output might extend beyond this year.
During the second part of the month, prices rose because of:
1. A weaker greenback. On February 15th, the euro/dollar exchange rate priced at 1.2493 €/$, which boosted the appeal of the commodities priced in the U.S. currency;
2. The drop in OCSE countries oil inventories;
3. The increase in the American oil exports, which reached approximately, 2,000,000 b/d, the most since October 2017;
4. On February 23rd, the production at Libya’s El-Feel well halted (-70,000 b/d) after protests disrupted its production.
At the end of the month, a new appreciation of the dollar, which reached its monthly maximum over the euro (1.2214 €/$ on February 28th), in addition to the rise in the U.S stocks (+3,020,000 barrels during the next week) supported a drop in prices.
On February 12th, United Arab Emirates Energy Minister, Suhail Al Mazrouei, currently the president of OPEC, said, “Shale is coming and the expectation is that it will come stronger than in 2017, and this is something that we have to watch. But considering all factors, I don’t think it will be a huge distorter of the market”.
As envisaged by Bloomberg on February 18th, OPEC’s real problem is whether it can ever adequately count inventories outside the developed OECD countries, which they already use over half of the oil consumed worldwide and are expected to account for 80% of the demand growth in 2018.
Probably, for this reason Saudis Oil Minister, Khalid A. Al-Falih, stated on February 19th, “If we have to overbalance the market a little bit, then so be it”.by Demostenes Floros
During the first month of 2018, oil prices rose because the Organization of the Petroleum Exporting Countries – headed by Saudi Arabia – and the non-OPEC crude producers – led by the Russian Federation – complied with their output limits at a rate of 125% in December, up from 122% a month earlier. Particularly, Brent North Sea quality opened the negotiations at $66.57/b and closed at $69.05/b, while West Texas Intermediate blend opened at $60.37/b, closing at $64.73/b.
On January 24th, the European and Asian benchmark reached $70.75/b, its record high since December 2014, whilst the American reference priced $66.12/b on January 26th, its highest in 37 months. The light decrease in barrel prices, which occurred during the last week of January, was due to the increase in U.S. rigs (11) and U.S. stocks (6,780,000 barrels) the latter, for the first time since November 2017.
The bullish monthly trend of oil was the consequence of different economic and geopolitical factors, among which:
1. According to the data exposed by the International Monetary Fund on January 23rd during the Forum in Davos (Switzerland), world economy will rise by 3.7% in 2018, supporting oil demand growth too. In fact, based on the figures issued by the International Energy Agency on January 9th, global oil demand is forecast to rise by 1,700,000 b/d, both in 2018, and in 2019, after having increased by 1,400,000 b/d in 2017.
2. Based on the weekly data published by the U.S. Energy information Administration, the American crude stockpiles shrank from 424,462,000 barrels on December 29th 2017 to 411,583,000 barrels on January 19th 2018, the lowest level since February 2015, as refiners boosted operating rates to the highest level in more than a decade. Especially, U.S. inventories fell for 10th week in a row in the longest stretch of declines on record, dropping to their lowest since December 2014. Then, American crude in storage tanks and terminals jumped by 6,780,000 barrels on January 26th.
OECD commercial inventories dropped as well, falling from 137,000,000 barrels to 133,000,000 barrels above the 5-year average.
3. In accordance with the figures shown by the Commodity Futures Trading Commission, the hedge funds increased their WTI net-long speculative position by 2.9% to 496,111 futures and options contracts during the week ended on January 23rd, the highest level since 2006.
At the same time, the Brent net-long speculative positions rose by 2.4% to 584,707 contracts, which is an ever record-high.
4. According to the Bloomberg Spot Dollar Index, the U.S. dollar dropped for a 7th straight week, the longest stretch of declines since 2010.
5. Last, but not least, with regard to geopolitics, the turmoils occurred at the beginning of the year in Iran, which is OPEC’s third-largest oil producer, in addition with Venezuela’s economic problems, that are affecting its extractions and exports, supported the barrel prices too. Especially, in the Latin American country, oil production reached 1,160,000 b/d in December, the lowest level in 30 years.
The depreciation of the dollar, in addition to the bullish speculative role played by hedge funds, contributed to the strong recovery of the American blend, with the consequence that the Brent/WTI price-gap narrowed to approximately $4/b at the end of January, the lowest since August 2017.
Despite the recent price gains, will the output cuts decided by OPEC and non-OPEC producers in November 2016 and prolonged in November 2017 continue until the end of the current year or will they stop in mid-2018 due to the achievement of the market rebalancing as some rumors hinted?
On January 13th, Iraqi Oil Minister, Jabbar al-Luaibi, stated, “There are some sources here and there indicating that the market is flourishing now, the prices are healthy, so let’s talk about terminating the freeze. This is the wrong judgment, and we don’t agree with such a concept”.
Let’s wait and see!by Demostenes Floros
In December, oil prices rose in the wake of the extension of the OPEC/non-OPEC deal, which increased the compliance with the output cuts to 115% in November, bringing the 2017 average compliance to 91%. In particular, Brent North Sea quality opened the negotiations pricing at $63.70/b and closed at $66.62/b – that is a record high since May 2015 – while West Texas Intermediate opened at $58.36/b, closing at $60.25/b – the highest level since June 2015.
On December 6th, both the European and Asian benchmark and the American blend reached their monthly low, respectively quoting $61.26/b and $55.97/b. According to the data published by the US Energy Information Administration, despite a drop in U.S. crude stocks by 5,600,000 barrels, the Distillate Fuel Oil inventories piled up by 1,700,000 barrels and the Total Motor Gasoline stocks accumulated by 6,800,000 barrels with the consequence that some hedge funds sold off their positions.
The different financial and geopolitical issues that supported the bullish barrel price trend were the followings:
1. On December 11th, the North Sea Forties Pipeline System (FPS) closed due to a crack. FPS has been operational since December 30th;
2. The role of finance. The hedge funds positions were the most bullish ever this year;
3. The weakness of the dollar;
4. The drop in U.S. crude stockpiles to the lowest level since July 2015;
5. On December 26th, the explosion of a pipeline in Libya decreased the production by approximately 100,000 b/d.
In 2017, barrel prices strongly increased in comparison with the previous year. In particular, Brent rose by 17.3%, while WTI by 10.3%. Due to the U.S. fracking growth, the market will probably be in a light oversupply until the first half of 2018 too, but the most important event in the new year will be the launch of the petro-yuan future convertible in gold by China.by Demostenes Floros
In November, oil prices increased, advancing to their highest levels since mid-2015. In particular, Brent North Sea crude quality opened at $60.44/b and closed at $62.71/b, while West Texas Intermediate blend opened at $54.27/b closing at $57.45/b in the wake of the extension of the November 2016 OPEC/non-OPEC agreement through to end of 2018, which should have expired on March 31st 2018.
In addition, the bullish monthly trend of oil was the consequence of different factors, among which:
1. According to the estimates provided by the Oil Market Report, OECD industry stocks fell by 40,000,000 barrels in September. For the first time in two years, global inventories dropped below 3 trillion barrels (63,000,000 barrels in 3Q17);
2. Despite the fact that the U.S. crude output reached 9,682,000 b/d (weekly forecasts), surging by 15% since mid-2016, WTI price also reached its peak at $58.81/b on November 24th, due to the closure of the Keystone pipeline, which connects Canada’s oil sand fields with the United States of America, following a spill. Keystone’s capacity is 590,000 b/d;
3. The steady depreciation of the dollar, which traded 1.1952 €/$ on November 27th, the lowest since September 4th (1.206 €/$);
4. The so-called Chinese Black Fiscal Friday. Starting from December 1st 2017, China will cut the tariffs of 187 imported consumer goods. The tariffs of alimentary, pharmaceutical, cosmetic and clothes goods will lower from the current average of 17.3% to 7.7%. In accordance to the economic and financial newspaper MF Milano Finanza, “this is one of the effects of Trump’s trip in Asia”;
5. The geopolitical tensions in the Middle East.
Taking into account that the oil market is still characterized by an oversupply, the second extension of the 2016 November agreement – if fully implemented in 2018 – will certainly bring the market again into balance with prices that are forecast at around $60/b.
Based on the data provided by the 2017 International Monetary Fund Outlook, currently the majority of the OPEC countries – after having rescaled their State budgets – have a breakeven price close to the IMF estimates (in reality, Saudi Arabia needs $73.1/b in 2017).
From a strictly geopolitical point of view however, the impression is that the Russian President, Vladimir Putin, is also one of the most important influential player in the Organization of the Petroleum Exporting Countries after having obtained the victory in the Syrian war, which created the preconditions for the 2016 November agreement.by Demostenes Floros
In October, oil prices significantly increased to around $4-5/b similar to what occurred in September too. In particular, Brent North Sea quality opened at $56.10/b and closed at $61.18/b, while West Texas Intermediate opened at $50.90/b and closed at $54.88/b. Thus, on October 27th, Brent overcame the threshold of $60/b for the first time in more than two years.
The price gap between the European and Asian benchmark and the American reference, which has been persisting at around $5-6/b, is almost entirely the consequence of the hurricanes in the Unites States, whose main effect was to decrease the refinery demand so, the WTI price. Moreover, it is interesting to put into light that this price spread determined an increase in the U.S. crude exports, which reached 2,000,000 b/d at the beginning of the month.
If we exclude on October 6th, when both qualities touched their monthly low respectively, pricing $55.52/b and $49.23/b as oil kept on ships in the North Sea rose by nearly 3,000,000 barrels to just over 5,400,000 barrels, the upward trend of prices was fundamentally steady during the entire month due to the following reasons:
1. The U.S. tight oil growth production seems to be slower than previously estimated. In fact, according to the data provided by the Energy Information Administration on September 30th, the U.S. Federal energy experts reviewed the fall of 178,500 b/d of July’s output, and of approximately 220,000 b/d of June’s production;
2. Global stocks are decreasing. Especially, since the beginning of 2017, the U.S. inventories have decreased by 17,000,000 barrels, while in 2016 they increased by 21,000,000 barrels.
3. The geopolitical difficulties with some OPEC producers as Libya and Venezuela with the addition of the fighting between Baghdad and the Kurdish Regional Government in the Iraqi oil city of Kirkuk, on October 16th;
4. In 2017, oil demand is forecast to grow by 1,600,000 b/d;
5. Based on Bloomberg, U.S. President, Donald Trump, is ready to appoint Jerome Powell as the successor of current FED Governor, Janet Yellen whose term as Chair will end in February 2018. Powell, who is currently a member of the Federal Reserve Board of Governors, will guarantee the continuity of a monetary policy based on a gradual increase in the U.S. interest rates.
In the wake of this news, the dollar depreciated over the euro, moving from 1.1785€/$ on October 25th to 1.1638€/$ on October 31st.
Waiting for the next OPEC meeting on November 30th, the financial difficulties (profitability) that the North American frackers are facing in addition to the willingness of both the Saudis and the Russians, to extend the 2016 November agreement to the entire 2018 may contribute to sustain and stabilize the current barrel prices.
The Russian Federation and Saudi Arabia have each earned $40,000,000,000 from the 2016 deal, said Kirill Dmitriev, CEO of the Russian Direct Investment Fund. International efforts to stabilize oil prices “have been fruitful, bringing oil prices to above $55 per barrel”, Dmitriev told Rossiya 24 news channel. “We believe that without this deal [that will expire on March 31st 2018], prices would be below $35 per barrel now”, he added.
by Demostenes Floros
In September, oil prices significantly increased at around $4/b. In particular, Brent North Sea quality opened at $52.75/b and closed at $56.68/b, while West Texas Intermediate opened at $47.34/b and closed at $51.54/b.
The European/Asian benchmark and the American reference reached their monthly high respectively, on September 25th – quoting at $59.24/b, a record high in the last 26 months – and on September 26th – pricing at $52.40/b, the maximum for the last two years – in the wake of the independence referendum held in the Iraq’s Kurdish region, the result of which clearly showed the will to separate from Baghdad.
As a consequence of this geopolitical tension, Turkish President, Recep Tayyip Erdogan, threatened to cut off the pipeline from northern Iraq’s Kurdish autonomous region to Turkey, which pumps approximately 600,000 b/d, while Baghdad called for an international boycott of Kurdish oil sales.
In addition to this specific, but temporary issue, three factors explain the bullish trend of barrel prices. In particular:
1. Demand – According to the data provided by the International Energy Agency on September 13th, oil demand is estimated to grow by 1,600,000 b/d in 2017 (revised upward for the third month in a row), reaching 97,700,000 b/d (+1.7% y-o-y).
The OPEC Monthly Oil Market Report published on September 12th confirmed this increasing trend even if for a lower amount. In fact, 2017 world oil demand growth is forecast to rise by 1,420,000 b/d (revised upward by 50,000,000 b/d);
2. Stocks – Based on the data provided by the Weekly Petroleum Status Report published by the Energy Information Administration on September 22nd, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1,800,000 barrels from the previous week;
3. Exports – In accordance with the Monthly Energy Information Administration Report, OPEC oil export decreased by 1,300,000 b/d between July and August.
Looking deeper into the September oil trend, the WTI decrease seen between September 8th/12th was directly related to the consequences of the exceptional atmospheric events, which happened in the Mexican Gulf in August. In fact, Goldman Sachs analysts predicted that the combined refiner demand loss, as a result of the hurricanes would total about 900,000 b/d in September and 300,000 b/d in October, a “bearish shock for global oil balances”.
In the aftermath, the recovery of WTI price was slower than that of Brent, probably because the U.S. frackers, having sold their forward production (hedging), slowed down the bullish tendency. As a matter of fact, the American quality clearly overcame the threshold of $50/b after the EIA published that the U.S. oil exports reached 1,500,000 b/d.
In its conclusion, the Oil Market Report put into light that “Based on recent bets made by investors, expectations are that markets are tightening and that prices will rise, albeit very modestly”. On September 26th, FED Governor, Janet Yellen, in the course of the last Federal Open Market Committee expressed her concerns with regard to the overestimated calculation of U.S. inflation and unemployment rate. Therefore, there is a high probability that the increasing of U.S. interest rates – currently, between 1/1.25% – will slow down in the next few months.
Will the North American frackers grab this opportunity or has the Energy Information Administration been overestimating 2017 U.S. crude oil production too as Continental Resource’s chief executive, Harold Hamm, pointed out?
In August, Brent North Sea quality opened at $51.52/b and closed at $52.85/b, while West Texas Intermediate price reduced, moving from $49.03/b to $47.11/b.
During the first part of the month, both the European and Asian benchmark and the American reference were quite stable. In particular, on August 9th, Brent quoted at $52.76/b because the futures related to this quality returned in backwardation, while WTI reached its monthly high at $49.81/b.
Subsequently, oil prices diminished and, on August 16th, both qualities touched their monthly low, quoting at $50.34/b and at $46.79/b as OPEC compliance to November 2016 agreement fell to 75% and U.S. oil production overcame 9,500,002 b/d for the first time since July 2015. Moreover, this latter data explain to us while WTI bearish trend was stronger than Brent tendency.
During the last ten days of August, whereas Brent prices raised thanks to the dollar depreciation over the euro – 1.2048 €/$ on August 29th, the lowest since January 2015 – WTI did not significantly recover as a consequence of Hurricane Harvey, which hit Texas. In fact, refinery outages mean a steep drop in oil demand (-5% in comparison with the 3rd week of August).
In our previous report, we wrote that if the price of Brent – returned to backwardation at the end of July – had continued in the next weeks, it would have contributed to opening a new scenario for OPEC and non-OPEC producers. On one side, the strong demand – estimated to grow by 1,500,000 b/d in 2017 – confirms our thesis but, on the other side, OPEC and non-OPEC producers must take care of their last arrangement since the American fracking producers, despite the persistence of some clouds on the horizon, are still increasing their output (9.530.000 b/d on August 25th).by Demostenes Floros
In July, oil prices increased. In particular, Brent North Sea quality opened at $49.58/b and closed at $52.68/b, while West Texas Intermediate opened at $47.19/b and closed at $50.20/b.
On July 7th, both the European and Asian benchmark and the American reference reached their monthly low, respectively pricing at $47.00/b and at $44.47/b as official data showed that U.S. drillers boosted production by 1% during the last week of June. In fact, after the U.S. oil extractions temporarily diminishing by 100,000 b/d to 9,250,000 b/d, they reached again 9,338,000 b/d.
Subsequently, barrel prices started to rise and, on June 19th, Brent traded at $49.70/b while WTI at $47.31/b. Three reasons can explain this bullish trend:
1. On June 13th, according to the data provided by the Energy Information Administration, U.S. refineries worked at 94.5% of their maximum capacity and the American crude stocks decreased by 7,600,000 b/d, the highest fall since September 2016. Simultaneously, U.S. gasoline inventories dropped by 1,600,000 b/d;
2. The dollar depreciated, both over the euro, and towards a basket of global currencies;
3. In the II quarter of 2017, China’s real Gross Domestic Product grew by 6.9% in comparison with the same period of 2016. This positive tendency was faster than expected and in line with the I quarter’s growth. The Chinese government is aiming to rise its GDP to around 6.5% in 2017.
After a new slight fall in barrel prices of approximately $2/b – probably, reconnected to the speculation – verified within 19th/21th of July, oil prices increased during the last week of the month in the wake of the decisions taken during the St. Petersburg meeting on July 24th. In particular:
1. Saudi Arabia decided to cut its oil exports to 6,600,000 in August, 1,000,000 b/d less in comparison with the same period of 2016, while United Arab Emirates will slash their September oil deliveries by 10%;
2. Nigeria, which is exempted by the 2016 November agreement, promised to collaborate with the cuts decided by the other OPEC Member as soon as it reaches the output of 1,800,000 b/d. At the moment, Nigeria’s production is slightly below this level;
3. By common consent, the Russian Energy Minister, Aleksander Novak, and his Saudi colleague, Khalid al-Falih, expressed their support to an eventual extension of the 2016 November agreement. At the moment, the deal will end on March 31st 2018;
4.The increase in U.S. oil and gas rigs is slowing down while U.S. inventories are showing massive drawdowns (10% less from their March peaks).
To conclude, if policy makers and investors want to look deeper into the analysis of the barrel trend, which happened during the last months, they have also to take into account the statements made on July 22nd by ENI CEO, Claudio Descalzi, who said, “There is a great deal of speculation going on. If, for instance, the price of crude oil goes up to 52 dollars, regardless of inventory levels, then everyone sells straightaway because they have no confidence in what’s going to happen. If the price drops back to 46 dollars, then they buy it back. That way, there are speculators making hundreds of millions, perhaps billions, of dollars every day.”
If the price of Brent – returned to backwardation at the end of the month – will it continue in the next weeks and contribute to opening a new scenario for OPEC and non-OPEC producers?
In June, oil prices decreased. In particular, Brent North Sea quality opened at $50.25/b and closed at $47.90/b, while West Texas Intermediate opened at $48.18/b and closed at $46.20/b. At the time of writing, Brent crude was trading at $48.57/b, while WTI was quoting at $45.90/b.
On June 21st, both the European and Asian benchmark and the American reference reached their 8-month low, respectively pricing $44.79/b and $42.25/b due to the following reasons:
1. During the first part of the month, global oil inventories (OSCE area) exceeded again 3 billion barrels. Especially, after two months during which U.S. oil stockpiles decreased by 25.600.000 barrels, they unexpectedly rose;
2. Both Nigeria, and Libya – which are exempted by the November 2016 agreement – increased their extractions, adding into the market 375,000 b/d;
3. On June 16th, the U.S. oil production has reached 9,350,000 b/d for the first time since August 2015 thanks to the fracking activity.
The light recovery verified during the last week of June was because in the U.S. crude stocks decreased by 2,500,000 barrels and the gasoline inventories by 578,000 barrels according to the Energy Information Administration. Moreover, U.S. oil extractions diminished by 100.000 b/d to 9,250,000 b/d.
To conclude, if barrel prices fell to their lowest level since November 2016 in spite of the supply cuts by OPEC and Russia and the geopolitical tensions in the Middle East between Qatar and the other Petromonarchies, the main reason is that the real global economic activity is slowdowning. As chance would have it, U.S. consumption trend, which determine 2/3 of its GDP – is weak.by Demostenes Floros
It was a volatile month of trading in May for the oil traders as the prices weakened during the early part of the month, then strengthened in the lead up to the OPEC meeting and then weakened again towards the end of the month as the OPEC once again sought to extinguish any sort of hopes that the market had, over the increasing oil prices. All of this action happened within one month and to some investors and traders, this should come as a relief after the stalemate that we had seen in the first couple of months of this year when the oil prices ranged and consolidated without moving much in any specific direction. Last month was all about the OPEC meeting that came about in the third week of the month. The oil prices had a deep fall during the first week of the month as the production and inventory data continued to show a buildup and this was not in the plans of the OPEC and the other producers who were hoping to see their production cut have an effect on the supply which would in turn help to keep pushing the oil prices higher and higher. None of this happened during the first week of the month of May and the oil buyers were scraping the bottom at the $44 region. But better news was to follow as reports began to flow in saying that the OPEC members are likely to agree on a much longer and a much deeper production cut in their meeting towards the middle of the month. More and more such reports began to emerge and Saudi Arabia and Russia also added fuel to the fire by commenting things similar to that effect and also not denying any such report. This increased the market expectations and the bulls showed their thumbs up for these reports by indulging in a lot of buying. As is usual for the markets, the traders clearly overran the reports and the actual meeting and by the time the meeting began in the third week of May, the oil prices had jumped from the depths of $44 to push through $50 and then make its way as far high as the $52 region. It was a clear case of over enthusiasm from the markets and in such cases, it ends up in a lot of tears and that’s what we say. The meeting did go through as planned but the announcements following the meeting were anywhere near as planned. The OPEC members announced an extension of the production cut deal to 9 months which would take the deal through to the end of the year but they did not announce any extra cuts of any sort. This largely disappointed the markets and the oil contracts began to sell off. This pushed the oil prices through the important psychological mark of $50 and the prices ended below that figure for the month of May. We also began to have reports saying that the Russians were comfortable with low oil prices and this basically left the oil prices at the mercy of the incoming production and inventory data. Technically, the break below the $50 mark is an important event which shows that the bears are dominating the scene as far as oil prices are concerned. It is likely to take a lot of effort from the bulls to break back through this region and that is something that is unlikely to happen in the short term as we saw multiple attempts to break through that region, end up in failure during the end of the month of May. We can expect the supports to come in at around the $47.5 region and then the $44 region and if the oil prices do go below even this, then there is not much to save it. Looking ahead to the month of June, we expect the production and the inventory data to dominate how the prices move during the course of the month and with these not showing any signs of thawing; the outlook for oil prices continues to be bearish. The production from Libya continues to be very high and the inventory data from the US also remains high and a combination of these is likely to keep the oil prices under pressure despite the production cut deal continuing through the month of June. The latest developments in the Middle East between Qatar and Saudi Arabia and company is likely to help to keep the oil prices well bid but it remains to be seen whether just this development would be enough to keep it afloat for the rest of the month.by FXEmpire
Crude oil prices started April in the midst of a strong uptrend that continued into mid-month. The move ended after with a dramatic technical reversal at the end of six day winning streak. The rally was primarily driven by aggressive hedge and commodity fund buying as money managers continued to increase bullish bets on a crude oil short-fall. The catalyst behind the buying was growing compliance with the OPEC-led plan to cut production, trim the global supply and stabilize prices. Traders primarily ignored signs of increasing U.S. production as rumors began to surface that OPEC and other non-OPEC producers were strongly considering an extension of the program to limit output beyond the June deadline. Crude oil began easing from its high at $54.14 on April 12 as rising U.S. shale oil production offset concerns over geopolitical tensions in the Middle East and output cuts being made to support prices. U.S. crude inventories also touched record highs at both the U.S. storage hub at Cushing, Oklahoma and in the U.S. Gulf Coast. In addition, the U.S. rig count continued to increase throughout April, setting a bearish tone for increased production into the future. Heaving selling on April 19 signaled massive hedge and commodity fund liquidation with the market dropping nearly 4% in one session. This also set in motion a sell-off that eventually drove prices to $49.20 before settling the month at $49.33, down $1.74 for the month or -3.41%.by FXEmpire
March has turned out to be a volatile month for the oil prices as they crashed during the early part of the month but they managed to turn it around and were able to recover a part of the move down during the last week of the month. The oil prices had been spending a couple of months in the range between $53 and $55 and it was getting to a stage where the traders were beginning to lose interest in trading oil as it was stuck in the highs of the range and refused to move in either direction for several weeks. It was during the month of March that the market began to slowly realise the scale of data that was coming in and realised that the incoming inventory and production data did not show as much a drop as was expected when the agreement between the oil producers was sealed. They had expected the production and the inventory to slow down, gradually pushing the prices higher and higher but with the North American producers increasing the production, the oil supply did not get the drop that it was supposed to. This finally dawned on the oil traders who sold off oil in the early part of March. The sell off was only for a couple of days but that was enough to push down the oil prices by around 12% and through the important figure of $50. This was a huge blow for the bulls and for 2 weeks, they could not break back through $50 cleanly and it was only towards the end of the month, that the oil inventory began to show signs of drying up, the oil producers seemed to be confident of continuing their deal beyond the middle of the year and the Libyan oil production also tailed off and all these events were enough to push the oil prices above $50 where it stayed to close the month. Looking ahead to April, we believe that the oil prices have come out of the rut below $50 and are here to stay above it for good. This is what the bulls would also hope for and it is important to watch out for the production and inventory data to see for signs of continuing fall or for signs of them picking up and these are the data that are likely to guide the oil prices in the coming month. We believe that the prices would range between $50 and $55 in the coming month if the incoming data is as expected. Else, the oil prices are likely to fall below $50 again and if that happens, the bulls would be finding it very difficult to break back above the important figure again.by FXEmpire
U.S. West Texas Intermediate crude oil futures finished February slightly higher. The range was extremely tight as rising U.S. production continued to offset increased compliance with OPEC’s planned output cuts. April WTI crude oil finished at $54.01, up $0.59 or +1.10%. The range for the month was an extremely tight $3.17. U.S. production continued to rise last month with inventory increasing every week to end the month at a record 520.2 million barrels. The number of rigs drilling for oil also continued to increase, ending February at 602 rigs, up about 36 rigs. According to Reuters, OPEC reduced its oil output for a second month in February. Its data showed that the cartel boosted strong compliance to around 94 percent. Saudi Arabia reduced production by more than it pledged. Russia has cut production by a third of its pledge. Finally, government data showed hedge funds hold a record net long position in crude oil futures and options.by FXEmpire
The month of January saw the beginning of the implementation of the OPEC deal between the oil producers to cut oil production as a means of increasing the falling oil prices. This was agreed among oil producers at the OPEC meeting last November, and we saw the oil prices consolidate and range for the whole of this month. Despite initial doubts, the implementation has been going on as per plan and the OPEC members have expressed happiness about it but the oil prices have not been able to breakout from its range as there are concerns about growing oil reserves from the North American countries that are not part of the pact. Though the OPEC and non-OPEC members have been diligently implementing the deal, the incoming data does not yet show any major changes in the reserves or the supply of oil and unless this starts showing up in the data, we are unlikely to see oil prices move higher. The ultimate target for the oil price would be around $60 and it is this average price that the producers would also be aiming for. But these prices would be difficult to achieve if the North American producers continue to pump large amounts of oil into the system as it then affects the overall supply and demand ratio and hence, oil prices would not be able to rise further. Looking ahead to February, the oil bulls would be hoping that the deal continues to hold in the midst of all the political tensions and would also expect the incoming data to show the contraction in supply so that the oil prices can break out of the topside of their range and towards the short term target of $55 and medium term target of $60.by FXEmpire
Crude oil posted a solid gain in December, driven by late November’s decision by OPEC to cut production starting January 1. There have been many doubts throughout the year as to whether the cartel could form a united front to deliver such a deal, but from the market’s performance this month, it looks as if investors are going to give them a chance to succeed. The initial plan called for OPEC to reduce production starting in January by 1.2 million barrels per day, or over 3 percent, to 32.5 million bpd. Top exporter Saudi Arabia said it would cut as much as 486,000 bpd. The news fueled a rally by U.S. West Texas Intermediate Crude Oil from $46.62 to $54.26. After a short-term setback to $51.80, the market spiked higher to $56.24 on December 12 as investors reacted to the news that producers from outside OPEC agreed to reduce output by 558,000 bpd. Russia pledged to cut the most among the non-OPEC countries at 300,000 bpd. The buying stalled after the jump to $56.24 as investors started to express doubts that the plan would work fast enough to reduce supply and stabilize prices. Additionally, investors became concerned over rising U.S. oil output and total supply as producers continued to put more oil rigs to work. Going into the end of the month, prices had become rangebound as several countries told customers of the upcoming supply cuts and Libya ramped up production. As of the close on December 23, March WTI Crude Oil was up 5.29% for the month.by FXEmpire
It was quite a month for January West Texas Intermediate Crude Oil futures in November. The markets were on a rollercoaster ride through the month, influenced by OPEC’s ability to carve out an agreement to cut and cap production. This lead the WTI to an intra-month low of $43.32 before November 30th surprise announcement by OPEC, carving out a 1.2m bpd cut in production from January 2017. This represents the Cartel’s first cut since 2008 and the first joint OPEC – Russia joint agreement to cut production since 2001. Heading into the Vienna meeting, the rhetoric was in full swing as the Saudis intimated an unwillingness to cut production if all Cartel members didn’t follow suit, though in the eleventh hour it was the Saudis themselves who took the biggest hit, agreeing to cut production by 0.5m bpd. Russia followed on with an agreement to cut production by 0.3m bpd, accounting for half of the 0.6m bpd cut agreed by non-OPEC members, though Russia ultimately will cut production by the 0.3m bpd through the first half of next year. WTI and Brent rallied 9.31% and 8.82% respectively on Wednesday, off the back of the announcement with the markets pushing the WTI to a monthly 5.5% rise leading to a closing price of $49.44. It was not a smooth ride after all, with Indonesia threatening to suspend its membership, refusing to cut production by 37k bpd, after having only re-joined earlier in the year. As the dust settles, the markets will likely begin to consider how U.S shale producers will respond to the agreement as the U.S active rig count has risen from 441 to 474 through the month.by FXEmpire
October has seen a continuous and steady rise all through the month in the oil prices which is just a continuation of the rise generated due to the decrease in the supply of oil from the OPEC producers based on the deal that they reached on September 28. Credit goes to them in that they have successfully managed to cut the oil production without any major diplomatic gaffes (though Iraq has refused to cut the production) and this reduction has helped oil price to move from $48.3 to as high as $52.3 during the course of the month.
Towards the end of the month, we see a correction in the oil prices due to general USD strength and also due to oil inventory data which continue to remain high despite the production cuts. Oil prices have also met a wall in the region between $52 and $53 which has proved to be a tough nut to crack even during periods of USD weakness and growth in commodity prices. We did see multiple attempts to break this price range but all have been unsuccessful so far.
The coming month would be crucial as the OPEC producers meet again in November to discuss further progress in the production cuts and it is expected that they would announce the specifics of production cuts including the amount and also the countries that would be doing the cuts as such. Once the details of the deal emerge and if they do successfully strike out a deal between the producers, we could see the next bullish run in the oil prices which may be enough to break the wall and head towards $55 and beyond.
November West Texas Intermediate Crude Oil futures went on a wild ride in September, posting a total of five major price swings on the daily chart and trading above and below the previous month’s close at $45.31 a total of six times before finally clearing for what is expected to be the last time on September 28.The two-sided trade highlighted in September allowed volatility to reach its highest level since April 2016 when OPEC was meeting in Doha to decide on production cuts. This month’s volatility was fueled by a similar event, but this time the talks were informal and the event took place in Algiers.Throughout September, investors were playing both sides of the market because of uncertainty over whether OPEC and the other major non-OPEC members would be able to strike a deal to either freeze production or curb output. The bullish traders had their wish granted on September 28 just as the informal talks were ending when in a surprise move, OPEC reached a tentative deal to reduce crude output levels. The agreement calls for a reduction of 700,000 barrels per day to 32.5 million barrels per day. The details of the deal still have to be worked out and this is likely to take place when OPEC holds its formal production meeting in November.The agreement to curb production was especially noteworthy because it marked the first time the group has been able to agree on production cuts since 2008.by FXEmpire
October Crude Oil began August under pressure as lingering supply concerns and weakening demand issues continued into the new month. After finishing July at $42.33, sellers drove the market into its lowest level in nearly 4 months. Profit-takers stopped the price slide on August 3 after crude reached $39.96, its weakest price since April 5. The spike to the downside on that day was a result of a bearish U.S. Energy Information Administration’s (EIA) weekly petroleum status report that showed commercial crude inventories increased to a historically high level for this time of year, according to the EIA. After building a record short position, short-covering by hedge fund managers helped the initial rally gain traction. The rally began to gain strength after a report that OPEC and non-OPEC countries would take another stab at trying to reel in production. Helping to drive prices into $47.64 or up 12.54% for the month was the news that OPEC had agreed to hold an ''informal meeting'' on the sidelines of the 15th International Energy Forum in Algeria on September 26 to September 28. October Natural Gas futures posted a volatile session in August, recovering from a seasonally-driven break into $2.580 before reversing course to finish nearly unchanged for the month at $2.913. The catalyst behind the rally was concerns that tropical storms in the Gulf of Mexico would eventually cause production issues.by FXEmpire