Crude oil prices continued to push upward as US Secretary of State Rex Tillerson took a tougher line on the conflict in Syria at a meeting with his G7 counterparts. He said the US will “[hold] to account any and all who commit crimes against the innocents,” stoking fears of a deepening crisis that may disrupt supply flow.
The sit-down extends for another day and traders will probably continue to monitor emerging commentary with great interest. Tillerson travels to Russia immediately thereafter and worries about the outcome of a diplomatic showdown may keep prices elevated.
Meanwhile, gold prices marked time as Fed Chair Janet Yellen carefully side-stepped opportunities to dislodge status-quo policy expectations in a closely-watched speech at the University of Michigan. From here, a lull in top-tier economic event risk puts geopolitics front and center.
The yellow metal rallied as risk aversion swept the markets after last week’s surprise US missile strike on Syria, threatening Fed rate hike prospects. Signs of deepening crisis may weigh on sentiment anew, making for more of the same. Needless to say, de-escalation may put this dynamic into reverse.
What will drive crude oil and gold prices in the next 3 months? See our forecasts to find out!
GOLD TECHNICAL ANALYSIS – Gold prices remain locked in a range below trend-defining resistance in the 1263.87-65.66 area (February swing high, trend line, 50% Fibonacci expansion). Negative RSI divergence hints that upside momentum is ebbing and a turn lower may be ahead. A break below the 1241.20-49.01 region (range floor, 38.2% Fib) exposes 1218.90, an inflection point in play since mid-January. Alternatively, a move above resistance targets the 61.8% level at 1282.31.
Chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices continued to push higher as expected having cleared resistance at 52.04, the 38.2%Fibonacci expansion. From here, a daily close abovethe 50% levelat 53.57 targets the 55.10-21 area (January 3 high, 61.8% Fib). Alternatively, a reversal back below 50.04 exposes the 23.6% expansion at 50.14 anew.
Chart created using TradingView
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
Minister: Iraq to boost crude oil production by year’s end
By sinan salaheddin, associated press
Iraq’s oil minister said on Sunday that his country plans to increase daily crude oil production to 5 million barrels by the end of this year, up from the current rate of about 4.4 million barrels per day, to secure sorely needed cash for its ailing economy.
Iraq, where oil revenues make up nearly 95 percent of the budget, has been reeling under an economic crisis since 2014, when oil prices began their descent from a high of above $100 a barrel. The Islamic State group’s onslaught, starting in 2014, has exacerbated the situation — forcing Iraq to divert much of its resources to a long and costly war.
Addressing an energy conference in Baghdad, Oil Minister Jabar Ali Al-Luaibi didn’t give details on which of the country’s oil fields would supply the increased output.
Late last year, Iraq joined a deal by OPEC and non-OPEC members to lower production for six months by 1.8 million barrels a day in order to prop up global oil prices. The mutual production decrease began on Jan. 1. Iraq’s share in the deal is to reduce output by 210,000 barrels a day to 4.351 million barrels.
“There are positive elements in that deal and we achieved a lot of its targets,” al-Luaibi told reporters on the sideline of the conference. “Work and cooperation are underway … to reach the 1.8 (million barrels a day) reduction,” he added, without divulging whether Iraq is going to support an extension to that deal.
OPEC Secretary General, Mohammed Barkindo, said the compliance among the participants was 86 percent in January and 94 percent in February. Barkindo told reporters that OPEC members would consider whether to extend the production decrease agreement at a meeting next month.
The deal propped up the crude price to around $50 per barrel.
Iraq holds the world’s fourth-largest oil reserves. This year, it added 10 billion barrels, bringing its total reserves up to 153.1 billion barrels.
Al-Luaibi also said that more 15 billion barrels are planned to be added by 2018.
Iraq’s 2017 budget stands at about 100.67 trillion Iraqi dinars, or nearly $85.17 billion, running with a deficit of 21.65 trillion dinars, or about $18.32 billion. That’s based on an estimated oil price of $42 per barrel and daily export capacity of 3.75 million barrels.
Iraq is also grappling with a major humanitarian crisis. The U.N. estimates that more than 3 million people have been forced from their homes since 2014. It also faces growing dissatisfaction among residents of areas recaptured from IS who have had their properties demolished and suffer from scarce public services.
5 key signatories to the OPEC output deal meet in Kuwait on Sunday
Oil prices finished slightly higher Friday, but logged their third weekly loss in a month.
Traders continued to weigh signs of OPEC-led cutbacks in global crude production ahead of a meeting of oil producers this weekend, against data pointing to the likelihood of further gains in U.S. output.
May West Texas Intermediate crude CLK7, +0.92% rose 27 cents, or 0.6%, to settle at $47.97 a barrel on the New York Mercantile Exchange. It touched intraday highs above $48 early Friday following news that Saudi Arabia said it cut oil exports to the U.S. in March by around 300,000 barrels a day.
For the week, May WTI oil futures saw a loss of about 1.7% from the week-ago settlement of $48.78 for the April contract, which was the front month at the time. The May contract itself lost 2.7% for the week, according to FactSet data.
May Brent crude LCOK7, +0.81% added 24 cents, or 0.5%, to $50.80 a barrel—for a weekly loss of about 1.9%.
For the session, “oil managed to rebound not because of an uptick in buyer interest, but because of book-squaring into this weekend’s OPEC gathering,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch.
Five representatives of the countries that signed up to the output agreement—Kuwait, Algeria, Venezuela, and non-OPEC nations Russia and Oman—will meet in Kuwait on Sunday to review the current level of compliance. Most members of the Organization of the Petroleum Exporting Countries are adhering to their pledges to make cuts, but data suggest not all non-OPEC producers are sticking to their quotas.
If OPEC says ‘something crazy while electronic markets are closed between now and Sunday night, it could cause futures to gap higher at next week’s open.’
“There is no question that OPEC is losing its grip on the market, but if they say something crazy while electronic markets are closed between now and Sunday night, it could cause futures to gap higher at next week’s open,” Richey said.
But then there’s the U.S., which isn’t part of the agreement.
“OPEC has done their part, but U.S. inventory data is still rising, keeping the lid on the oil price,” said Naeem Aslam, chief market analyst at Think Markets.
Data on the number of active U.S. oil rigs from Baker Hughes BHI, -0.29% released Friday revealed a rise of 21 to 652 rigs this week—suggesting the likelihood of a rise in domestic production to come. The oil rig count has climbed every week this year so far, except for one.
Elsewhere in the energy spectrum, gasoline for April RBJ7, +1.34% settled up 1% at $1.605 a gallon, to end the week up 0.4%, while April heating oil HOJ7, +1.12% added 0.5% at $1.498 a gallon, down about 0.7% for the week.
That figure tops the former record of 512.095 million barrels for the week ended April 29, 2016.
“The continued growth in the stocks of crude is due to higher production in U.S. shale plays and imports that exceed the volume needed by refiners,” said James Williams, energy economist at WTRG Economics.
“We have enough petroleum inventory to cover close to 70 days of consumption, when the historical norm is well below 60 [days],” he said. The Organization of the Petroleum Exporting Countries is “trying to reduce it, but the effect of [its] efforts are not showing up in the U.S.”
MarketWatch asked several analysts how stockpiles managed to reach an all-time high, even as domestic crude production currently stands at 8.977 million barrels a day—below the record peak output of 9.61 million last seen during the week ended June 5, 2015.
Here are the reasons they came up with (in unranked order):
• Strong imports: “The real driving force has been the surge in imports,” said Troy Vincent, oil analyst at ClipperData.
‘The real driving force has been the surge in imports.’
The EIA on Wednesday report that crude imports for last week averaged 8.5 million barrels, down 881,000 barrels a day from a week earlier. However, over the last four weeks, they have climbed 9.9% vs. the same period a year earlier.
Matt Smith, director of commodity research at ClipperData, said that the U.S. saw nearly 10% more waterborne imports in 2016 than the year before.
“Bargain-basement prices for foreign oil in the last year have been too difficult for U.S. refiners to ignore,” he said. “We will likely see this trend ebb in the months ahead, as OPEC imports fall off—yet U.S. production is rising again to plug the gap.”
• OPEC: “Keep in mind the OPEC cut isn’t really fully felt inside the USA just yet,” said Nico Pantelis, head of research at Secular Investor.
But the “transit time between the countries where the USA is importing a large part of its oil from is several weeks, so cargoes arriving from the Middle East are still geared towards a full production rate in Saudi Arabia,” said Pantelis, noting that 11% of U.S. imported oil comes from Saudi Arabia.
The market will see lower import numbers materializing in the next few weeks, he added.
• Reduced refinery runs: U.S. crude-oil refinery inputs averaged about 15.5 million barrels a day last week—that’s 435,000 barrels per day less than the previous week and down about 390,000 barrels from the year-ago level, according to the EIA.
Refinery utilization stood at 85.4% of capacity, down from 87.7% a week earlier and 88.3% a year earlier, data showed.
That means there’s less crude headed to, and being processed at, the refineries.
• U.S. production: Charles Perry, chief executive officer of energy-consulting firm Perry Management, summed this up well: “the rise in [crude] inventories is due to increase in domestic drilling driven by good economics for domestic production.”
Weekly U.S. crude-oil production at just under 9 million barrels a day has a ways to go before reaching any records, but domestic output has generally been climbing since the second half of 2016 as oil prices for West Texas Intermediate CLH7, -0.19% and Brent crude LCOJ7, -0.13% climbed to levels they hadn’t seen in more than a year.
The EIA has estimated that more than half of U.S. production comes from shale oil.
A monthly report from the government agency released Monday showed expectations for a month-on-month increase of 80,000 barrels a day in March shale oil production.
And oil-rig count data from Baker Hughes BHI, +0.00% point to even more output gains ahead.
• Rise in oil company spending: “Several North American oil producers have increased their [capital expenditure] budgets in the final quarter of last year, and this resulted in a corresponding production increase, which is boosting the inventory levels,” said Pantelis.
Exxon Mobil Corp. XOM, +0.41% announced in late January that it plans to spend $22 billion this year, 14% higher than the amount it spent in 2016.
• Demand slowdown: S&P Global Platts estimated Chinese oil demand growth of 1.3% in 2016 to 11.35 million barrels a day, but that was down from 6.6% growth in 2015, when price declines boosted demand.
Reuters calculated Chinese oil demand growth of 2.5% in 2016, based on official data—a three-year low—down from 3.1% in 2015.
“Two years of OPEC overproduction to defend market share and the introduction of 4.5 million barrels [from 2007-08 levels] of incremental U.S. [lower 48 states] production that transpired concurrently with a slowdown in the rate of China oil demand as well as OECD oil demand, brought us to current record inventory levels,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors.
Investing.com – Oil futures tumbled to multi-month lows on Friday and booked their biggest weekly loss in almost a year amid mounting skepticism over the implementation of a planned deal by OPEC to limit production.
On the ICE Futures Exchange in London, Brent oil for January delivery fell to a session low of $45.08 a barrel, a level not seen since August 11. It was last at $45.58 by close of trade Friday, settling down 77 cents, or 1.66%.
For the week, it logged a decline of $4.13, or 8.3%, the biggest weekly loss since the middle of January, amid fading expectations of a coordinated production cut among major global oil producers.
Prices fell sharply on Friday after Reuters, citing an OPEC source, reported that Saudi Arabia threatened to raise its oil production at a meeting of OPEC experts last week if Iran refused to cap its output.
A short time later, Bloomberg News reported that OPEC Secretary General Mohammed Barkindo denied that the Saudis made the threat.
OPEC reached an agreement to cap output to a range of 32.5 million to 33.0 million barrels per day in talks held in Algeria in late September. However, the 14-member oil group said it won’t finalize details on individual output quotas until its next official meeting in Vienna on November 30.
The possibility that producers could walk away empty-handed from the November meeting looms large after Iraq, Iran, Nigeria and Libya all signaled they might not take part in the proposed production cut deal. Russia’s unclear stance is also fueling uncertainty.
Elsewhere, on the New York Mercantile Exchange, crude oil for delivery in December slumped 59 cents, or 1.32%, to end the week at $44.07 a barrel. The contract dropped to $43.57 earlier, the lowest level since September 20.
Prices stayed lower after oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week rose by 9 to 450, resuming its rise following its first dip in roughly four months in the previous week.
New York-traded oil futures lost $4.63, or 9.5%, on the week, as investors reacted to a record weekly surge in U.S. crude inventories.
The U.S. Energy Information Administration said that crude oil stockpiles rose by a whopping 14.4 million barrels to 482.6 million last week, which the EIA considered to be “historically high levels for this time of year”.
Oil prices sharply pared gains in post-settlement trading after preliminary data from the American Petroleum Institute showed a surprise build in U.S. gasoline stocks.
U.S. West Texas Intermediate crude was last up 1.5 percent at $46.44 a barrel, while international Brent crude was up 1.5 percent at $49.08 a barrel.
Some traders had cautioned that the API’s preliminary weekly U.S. crude stockpiles data could show a fourth week of builds.
“If we’ve learned anything about the oil market, it is that sentiment is extremely fragile,” said Michael Tran, director of energy strategy at RBC Capital Markets in New York.
Earlier on Tuesday, oil settled up nearly 2 percent, hitting five-week highs for a second straight day as sources at OPEC spoke of Saudi Arabia’s apparent desire for higher crude prices while Russia met the producer group to discuss the market.
A weaker dollar also supported crude prices, as did the loss of more than 700,000 barrels per day (bpd) in Nigerian output to militant attacks and pipeline problems.
Russian and OPEC energy officials discussed oil markets at a meeting in Vienna, Russia’s Energy Ministry said. Another “energy dialogue” between Russia and OPEC has been scheduled there for October.
“While it is tempting to dismiss the OPEC chatter as a non-factor intended to talk up prices, we are also resigning to a momentum shift in which our technical indicators are flashing green lights in favor of further crude price rallies of at least a couple of dollars a barrel,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.
Technical analysts said oil could set 2016 highs in four to six weeks if Brent crosses $50 a barrel and U.S. crude $48.
But volatility also looks certain. Speculators have ramped up both bullish and bearish wagers.
OPEC production pressures
Brent crude settled up 88 cents, or 1.8 percent, at $49.23 a barrel. It rose more after settlement, reaching $49.34, its highest since July 7.
Investing.com – Oil futures ended Friday’s session slightly lower, as the U.S. dollar spiked following the release of upbeat U.S. employment data and after a report showed the number of U.S. oil rigs rose for a sixth straight week.
But prices still ended the week with modest gains as technical short-covering and bargain-hunting returned to support the market.
On the New York Mercantile Exchange, crude oil for delivery in September dipped 13 cents, or 0.31%, to end at $41.80 a barrel by close of trade.
Oil futures initially jumped higher after data showed U.S. nonfarm payrolls increased more than expected in July, boosting optimism over the health of the world’s largest economy.
But prices started moving lower as the upbeat jobs report lifted the U.S. dollar to one-week highs against most of its major counterparts. Oil prices typically weaken when the U.S. currency strengthens as the dollar-priced commodity becomes more expensive for holders of other currencies.
Crude stayed lower after oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week increased by seven to 381, the sixth consecutive weekly rise and the ninth increase in 10 weeks.
Despite Friday’s modest losses, New York-traded oil futures inched up 20 cents, or 0.48%, on the week, snapping a two-week losing streak, aided by an impressive rebound that followed upbeat data on gasoline inventories.
According to the U.S. Energy Information Administration, gasoline inventories decreased by 3.3 million barrels last week, much more than the expected 0.2-million-barrel decline.
However, the report also showed that crude oil inventories rose by a surprising 1.4 million barrels to 522.5 million, which the EIA considered to be “historically high levels for this time of year”.
According to market experts, elevated stocks of fuel products amid slowing global demand growth is expected to keep prices under further pressure in the near-term.
WTI crude futures are nearly 19% lower from their 2016 highs above $50 a barrel scaled in early June, as signs of an ongoing recovery in U.S. drilling activity combined with growing gasoline stockpiles weighed.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for October delivery shed 2 cents, or 0.05%, on Friday to settle at $44.27 a barrel by close of trade.
For the week, London-traded Brent futures tacked on 74 cents, or 1.67%, the first weekly gain in three weeks as investors returned to the market to seek cheap valuations after prices sank to the lowest level since April.
London-traded Brent futures are down almost 16% since peaking at $52.80 in early June, as prospects of increased exports from Middle Eastern and North African producers, such as Iraq, Nigeria and Libya, added to concerns that a glut of oil products will cut demand for crude by refiners.
In the week ahead, oil traders will be focusing on U.S. stockpile data on Tuesday and Wednesday for fresh supply-and-demand signals.