NEW YORK, January 9 -- Brent crude oil has returned to $60/barrel while WTI has moved back above $50/b as hopes of a deal between the US and China on trade continues to build.
Yesterday, US President Trump tweeted: “Talks with China are going very well” and that was followed by news of an unplanned extension of the talks into Wednesday. These developments have supported a continued recovery in global stocks following a miserable December. Adding to this are a softer dollar and ongoing production cuts from the Opec+ group, which have all supported the current change in sentiment.
A trade deal between the US and China, however, is likely to slow but unlikely to reverse the deterioration seen recently in forward-looking economic data from the US to Europe and China. On that basis the upside at this stage may be limited to the upper area of the mentioned consolidation area for Brent at $64/b and WTI at $55/b.
Another reason why the bulls may need to be patient can be seen in the developments of the forward curve and the open interest in the two major oil contracts of WTI and Brent. A rally driven by fundamentals, such as the outlook for a tightening, would normally trigger a flattening of the forward curve, as the contango – the prompt months discount to deferred – begins to narrow.
As per the chart below we find that the six months spread between February (CLG9) and August (CLQ9) has hardly moved since December. Hedge funds would normally during a rally cut short positions while adding fresh longs. However, since the December 24 low the open interest in WTI has only risen by 61k lots while in Brent it has only risen by 36k lots. This could indicate that the rally has been short covering more than fresh longs entering the market.
RIYADH, December 29 -- The Arabian Peninsula’s largest state, both in land mass and population, the Kingdom of Saudi Arabia faces some of the region’s largest challenges in the year ahead.
While 2018 started out with a foreign policy success – the US pulling out of the nuclear deal with rival Iran – the months that followed have left the country in a damaged condition going into 2019.
A draining conflict in neighboring Yemen, the continuing fallout from the murder of Washington Post columnist Jamal Khashoggi, the suspected kidnapping of the Lebanese prime minister, a stalemate in the Qatar blockade, and defeat for Saudi-funded opposition factions in Syria all made 2018 a bruising year for the country – and for its 33-year-old crown prince and effective CEO, Mohammed bin Salman (popularly known as MBS). These overseas issues have also left MBS’s domestic reform agenda stalled, with a need to shore up support at home, as he tries to restart a long-overdue restructuring of the highly oil-dependent economy.
After the 2016 launch of an ambitious domestic reform agenda, Vision 2030, MBS imprisoned some of the country’s wealthiest people in the Ritz-Carlton hotel in 2017. This made him some silent enemies amongst the kingdom’s elite. His father, the ailing, 83-year-old King Salman, has played an important role in keeping potential rivals under control, taking his son on a tour of the country to shore up support for his agenda.
NEW YORK, December 18 -- Oil prices fell more than 4 per cent on Tuesday as planned production curbs by global producers.
Led by Saudi Arabia and Russia, producers failed to allay concerns about renewed oversupply stoked by swelling US shale output. Fears about weaker oil demand amid a potential slowdown in the global economy have also added to worries about how effective the supply cuts will be. The fall in oil prices comes amid a broader sell-off in the global equities market due to persistent worries centred on how the US-China trade spat could hit economic growth. Prices“Prices are continuing to nose-dive,” said Carsten Fritsch at Commerzbank. “The effect of the announced production cuts after Opec’s meeting [earlier this month] has evaporated entirely.”
International benchmark Brent crude fell $1.70 (€1.50) a barrel to $57.91 in mid-morning trading in London, having fallen as low as $57.20 – marking the third consecutive day of declines.
West Texas Intermediate, the US benchmark, fell $1.51 a barrel to $48.37, the lowest level since September, 2017.
Global producers have agreed to cut production by 1.2 million barrels a day (b/d) to halt a more than 30 per cent slide in oil prices, since hitting $86 a barrel in October. The move came in defiance of US president Donald Trump who had called for the Organisation of Petroleum Exporting Countries (Opec) to keep output elevated and prices low. But record output from Saudi Arabia above 10 million b/d since July coincided with news that the US would issue waivers to buyers of Iranian oil – at the same time as imposing sanctions against Tehran’s economy – allowing more oil than anticipated on to the market.
Still, Iranian output and exports have fallen sharply this year and other producers such as Venezuela have seen a slide in their supplies because of turmoil in their countries. Production and exports from Libya’s largest oilfield, El Sharara, have also been halted due to security issues. Still, this has not been enough to help firm up oil prices as hoped by global producers, which largely rely on revenues from crude exports to support their economies. Data from the US energy department showed that the US has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall crude production climbing to a weekly record of 11.7 million b/d.
This has fuelled doubts about the effectiveness of the supply curbs and raised questions among traders and analysts about how long Opec and its allies will be willing to trim its supplies to benefit US rivals. Market participants are also questioning how much Russia will pull back on its production, after also hitting a record level above 11.4 million b/d in December. – Copyright The Financial Times Limited 2018
NEW YORK, November 20 -- OPEC has lost what control of the oil market it ever had.
The actions (or tweets) of three men — Presidents Donald Trump and Vladimir Putin and Crown Prince Mohammed Bin Salman — will determine the course of oil prices in 2019 and beyond. But of course they each want different things. While OPEC struggles to find common purpose, the U.S., Russia and Saudi Arabia dominate global supply. Together they produce more oil than the 15 members of OPEC. All three are pumping at record rates and each could raise output again next year, although they may not all choose to do so.
It was Saudi Arabia and Russia that led the push in June for the OPEC+ group to relax output restraints that had been in place since the start of 2017. Both subsequently jacked up production to record, or near record, levels. U.S. output soared unexpectedly at the same time, as companies pumping from the Permian Basin in Texas overcame pipeline bottlenecks to move their oil to the Gulf coast.
These increases, alongside smaller downward revisions to demand growth forecasts and President Trump’s decision to grant sanctions waivers to buyers of Iranian oil, have flipped market sentiment from fears of a supply shortage to concerns about a glut in the space of three months. Oil stockpiles in the developed nations of the OECD, which had been falling since early 2017, are rising again and are likely to exceed their five-year average level when October data are finalized, according to the International Energy Agency.
As oil prices have headed south, Saudi Arabia said it would cut exports by 500,000 barrels a day next month and warned fellow producers that they needed to cut about 1 million barrels a day from October production levels. That drew a lukewarm response from Putin and swift Twitter rebuke from Trump.
Bin Salman needs oil revenue to fund his ambitious plans to transform Saudi Arabia, while avoiding unrest from those hurt in the process. The International Monetary Fund forecasts that the kingdom will need an oil price of $73.3 a barrel next year to balance its fiscal budget. Brent crude is trading about $5 below that, with Saudi Arabia’s exports trading at a discount to the North Sea benchmark. Prolonging output cuts for a third year is the only way he can realize the price he needs.
He will face more challenges from Putin and Trump. The Russian president shows no great enthusiasm for restricting his country’s production again. Moscow’s budget is much less dependent on oil prices than it was when Russia agreed to join OPEC-led efforts to re-balance the oil market in 2016 and the country’s oil companies want to produce from the fields where they have invested.
Putin may yet decide that maintaining his improved political relationship with MBS, as the Crown Prince is known, is worth a small sacrifice. But it’s not a foregone conclusion that Russia will agree to extend output cuts when producers gather in Vienna next month. Putin says oil prices of around $70 a barrel suit him “completely.”
The opposition from Trump will — naturally — be much louder and comes at a time when he and MBS are trying to preserve their political relationship, while American senators consider harsher sanctions on Saudi Arabia in response to the war in Yemen and the killing of dissident journalist Jamal Khashoggi.
A bigger U.S. threat to Saudi plans than Trump’s tweets will come from the Texas oil patch. American producers have added a volume equivalent to the entire output of OPEC’s Nigeria in the past 12 months. Their production could reach 12 million barrels a day by April, according to the Department of Energy. That’s six months sooner than it was forecasting just a month ago and 1.2 million barrels a day more than it foresaw in January.
Saudi Arabia will have to risk Trump’s wrath, Putin’s indifference and a booming U.S. shale industry if it hopes to balance the oil market in 2019.
"The move could send prices upwards as Russia and the US continue to break records in oil production"
RIYADH, November 11 -- Saudi Arabia has said it will trim oil exports by 500,000 barrels per day (bpd) in December, as major producers met to consider cuts to shore up declining prices.
The announcement was made by Khalid al-Falih, the kingdom's energy comments, in comments he gave to reporters at the meeting in Abu Dhabi, UAE. Saudi Arabia, the world's top oil exporter, has been pumping 10.7 million bpd since October, according to Falih.
While Riyadh has decided to lower production, the rest of the attendees did not come to a consensus on the matter, according to Falih. The Organization of the Petroleum Exporting Countries (OPEC), which is led by Saudi Arabia, agreed in June with a bloc of 10 petroleum-producing nations led by Russia, to increase global supply by one million bpd.
Since then, OPEC production has risen 820,000 bpd since May, according to the latest S&P Global Platts OPEC survey. Russia said in November it hit a 30-year high of 11.41 million bpd in October, an increase of about 440,000 from May. The US also hit a record-high of 11.6 million bpd in November, CNBC reported.
The glut in production came as investors expected losses from Iranian oil production, which has come under sanctions re-instated by the US administration of President Donald Trump.
Venezuela, another of the world's top oil producers and OPEC member, is mired in economic and political turmoil that has strained its production. The South American country's oil production fell almost 13 percent in 2017, according to figures released by OPEC in January.