Oil Market Review

Monthly Review

  • 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
  • March 2019

    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
  • February 2019

    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
  • January 2019

    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
  • December 2018

    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