Crude oil inventories jumped to a new record last week, according to the Energy Information Administration (EIA), causing prices on the futures market to decline. Since the beginning of 2017, inventories have increased 10 out of 11 weeks.
Oil inventories in the U.S. rose 50 million barrels to 533,110 million barrels since the first week in January, according to EIA’s report issued on March 22. Crude oil inventories at the Cushing, Oklahoma, delivery hub for U.S. crude futures rose 1.4 million barrels, the EIA said.
Prices on the New York Mercantile Exchange dropped to around $47 in response to the news.
Speculators attributed the rise in stock to an increase in U.S. oil production and a rise in oil imports. However, worldwide supplies appear to be smaller than they were a year ago, while demand is picking up. Production from OPEC members has declined since January. Demand in two key countries – China and India – increased in February.
Declining oil production and increased demand on the international markets appear to have softened the blow to crude oil prices in the U.S. Brent crude, which is traded in London, closed above $50 a barrel for the first time since November 30, closing at $50.64 per barrel on March 22. Refinery runs rose 329,000 barrels per day as utilization rates jumped 2.3 percentage points to 87.4% of capacity, led by higher runs at Gulf Coast and Midwest refiners. Gasoline stocks fell 2.8 million barrels, compared with analysts’ expectations for a 2 million-barrel drop. Distillate stockpiles, which include diesel and heating oil, fell by 1.9 million barrels, versus expectations for a 1.4 million-barrel drop, according to EIA data.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
US crude settles at $48.86, up 2.4% on stockpile drop, snapping 7-session losing streak
Futures Now: Crude oil breaks losing streak
Oil prices rose more than 2 percent Wednesday, lifted by a surprise drawdown in U.S. crude inventories and data from the International Energy Agency (IEA) suggesting OPEC cuts should create a crude deficit in the first half of 2017.
Data from the U.S. Energy Information Administration (EIA) showed U.S. crude stocks fell last week, dropping after nine consecutive increases.
Inventories fell by 237,000 barrels in the week to March 10, compared with analysts’ expectations for an increase of 3.7 million barrels.
The IEA said global inventories rose in January for the first time in six months despite OPEC output cuts, but said if it stuck to its production curbs the market should see a deficit of 500,000 barrels per day (bpd) in the first half.
“For those looking for a rebalancing of the oil market the message is that they should be patient, and hold their nerve,” the IEA said in its monthly report.
Brent futures were up 83 cents, or 1.6 percent, at $51.75 a barrel by 2:39 p.m. ET (1839 GMT). Prices had hit a three-month low of $50.25 during the previous day’s trading.
Prices extended gains after the U.S. Federal Reserve raised interest rates in a widely anticipated move that sent the dollar index lower. A weaker greenback makes dollar-denominated crude oil more affordable to holders of other currencies.
EIA also reported gasoline stocks fell by 3.1 million barrels, compared with analysts’ expectations in a Reuters poll for a 2 million-barrel drop. Distillate stockpiles, which include diesel and heating oil, were down 4.2 million barrels, versus expectations for a 1.7 million-barrel drop.
Earlier, the IEA reported global inventories rising in January for the first time in six months despite OPEC cuts since Jan. 1, but said if OPEC stuck to limits the market should see a deficit of 500,000 barrels per day (bpd) in the first half of 2017.
“As long as OPEC stays on track and non-OPEC delivers on their agreed cuts, the market will continue to balance,” said Ole Hansen, head of commodity strategy at Saxo Bank.
The Organization of the Petroleum Exporting Countries said at the end of November it would cut 1.2 million bpd during the first half of 2017, and then in December reached a deal with non-OPEC producers to cut about 600,000 bpd from their output.
Matt Smith: US oil inventories at record highs
Despite OPEC compliance with its share of the cuts, stockpiles have continued to rise, in part because OPEC members pumped heavily before cuts kicked in and also because U.S. shale producers have raised output as Brent spiked above $58 in January.
Last week, prices plummeted more than 5 percent, the biggest drop in a year, as U.S. crude inventories surged much more than expected to a record high.
“While such patience (counseled by the IEA) may indeed benefit longer-term investors it may not be much help for money managers facing year-to-date losses on long positions, whether longer-term holdings benchmarked to the December 30 Brent closing price of $56.82 or purchased over the long period of range trading over the first ten weeks of the year,” Tim Evans, Citi Futures’ energy futures specialist, said in a note.
“Surplus inventories and rising U.S. production may be more of a worry to them.”
Investing.com – Oil futures settled at the lowest level since the end of November on Friday, booking a weekly loss of around 9% as concern over rising shale production and record-high U.S. crude inventories offset optimism that OPEC and its allies have been following through on their commitment to cut production.
The U.S. West Texas Intermediate crude April contract touched a session low of $48.31 a barrel on Friday, a level not seen since November 30. It was last at $48.49 by close of trade, down 88 cents, or about 1.8%.
The U.S. benchmark lost $4.84, or almost 9%, on the week, its biggest weekly drop in five months.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for May delivery slumped 82 cents, or about 1.6%, to settle at $51.37 a barrel by close of trade. The global benchmark fell to $51.14 earlier, its cheapest since November 30.
For the week, London-traded Brent futures recorded a loss of $4.53, or 8.1%, the fifth straight weekly decline.
Concerns that the ongoing rebound in U.S. shale production could derail efforts by other major producers to rebalance global oil supply and demand pressured crude prices.
Data from oilfield services provider Baker Hughes on Friday revealed that the number of active U.S. rigs drilling for oil rose by 8 last week, the eighth weekly increase in a row. That brought the total count to 617, the most since October 2015.
Meanwhile, the U.S. Energy Information Administration said on Wednesday that crude supplies jumped by 8.2 million barrels last week to yet another all-time high of 528.4 million. It was the ninth straight weekly build in U.S. stockpiles, feeding concerns about a global glut.
Oil prices have been trading in a narrow $5 range around the low-to-mid-$50s over the past three months as sentiment in oil markets has been torn between rising stockpiles and increased shale production in the U.S. and hopes that oversupply may be curbed by output cuts announced by major global producers.
OPEC and non-OPEC countries made a strong start to lowering their oil output by almost 1.8 million barrels per day by the end of June, but so far the move has had little impact on inventory levels.
Kuwait is scheduled to host a ministerial meeting on March 26 comprising both OPEC and non-OPEC members to review compliance with the output agreement and to discuss whether cuts would be extended beyond June.
Elsewhere on Nymex, gasoline futures for April shed 2.4 cents, or about 1.5% to $1.600 on Friday. It ended down about 3.2% for the week.
April heating oil inched down 2.5 cents, or 1.7%, to finish at $1.503 a gallon, the lowest since November 30. For the week, the fuel lost roughly 5.7%.
Natural gas futures for April delivery rose 3.4 cents, or almost 1.2%, to $3.008 per million British thermal units. It posted a weekly gain of 6.4%.
In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.
Meanwhile, investors will keep an eye out for monthly reports from the Organization of Petroleum Exporting Counties and the International Energy Agency to gauge global supply and demand levels.
Traders will also continue to pay close attention to comments from global oil producers for further evidence that they are complying with their agreement to reduce output this year.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Tuesday, March 14
The Organization of Petroleum Exporting Counties will publish its monthly assessment of oil markets.
Later in the day, the American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.
Wednesday, March 15
The International Energy Agency will release its monthly report on global oil supply and demand.
The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.
Thursday, March 16
The U.S. government is to produce a weekly report on natural gas supplies in storage.
Friday, March 17
Baker Hughes will release weekly data on the U.S. oil rig count.
If oil keeps plunging, can stocks keep holding up?
The recent weakness in crude oil could prove to be a positive for equities, according to one chart-minded strategist.
WTI crude remained below $50 per barrel early Friday, already having slipped nearly 6 percent this week, but stocks were steady as the S&P 500 and Dow Jones industrial average were in the green. Crude oil supply in the U.S. has reached record highs, fueling some doubts about OPEC-led agreements to curb production.
Before the November production agreement, low oil prices were considered a bearish sign for stocks. Now, however, Oppenheimer technical analyst Ari Wald said he’s not concerned about sinking crude oil prices’ effects on equities.
“In fact, I think for the long run this could be quite positive,” he said.
In looking historically at crude oil’s 52-week rate of change, Wald found that the worst forward performance in the S&P 500 occurred when the price of crude oil was higher per barrel. A high rate of change for oil is a proxy for an “economic boom,” Wald said Thursday.
“Overall, stocks ex-those tied to oil prices, should continue to do well as long as oil prices are low and stable, and avoid a steep run-up,” he wrote in an email.
In an interview on CNBC’s “Trading Nation” Wald said that if anything, the recent downturn in crude has removed a potential headwind for stocks not directly tied to oil prices.
Oil could continue to weaken, given the likelihood of a Federal Reserve interest rate hike, which could strengthen the U.S. dollar and slow economic growth, said 55 Capital Partners strategist Max Wolff.
“Both are bad for oil,” as well as for stocks, Wolff said. “We see the commodity space and oil as a better economist than the markets lately.”
The price of U.S. crude oil has dipped below $50 for the first time since December as a global supply glut persists despite production cuts by big exporters.
In November, the Organization of Petroleum Exporting Countries and other oil-producing nations agreed to lower their output for much of 2017 to rein in chronic oversupply and to boost prices. But drilling and stockpiles of oil have continued to rise, particularly in the U.S.
West Texas Intermediate (WTI) oil, the U.S. benchmark, fell $1.23 a barrel to $49.05 on Thursday, and is down 9% in March.
Brent crude oil, the benchmark for international oils, declined 54 cents a barrel to $52.57.
U.S. commercial crude supplies have risen for nine straight weeks, reaching a record 528.4 million barrels last week, according to the U.S. Energy Information Administration. That was an increase of 8.2 million barrels from a week earlier.
“The rising crude inventory levels in the US to new all-time highs has been the No. 1 reason why prices have been unable to move further higher,” Fawad Razaqzada, market analyst at Forex.com, wrote to investors Wednesday.
The effects of lower oil prices have reverberated through the economy. Prices at the gas pump have fallen since early January, putting more money into drivers’ pockets. The average U.S.gas price peaked this year at $2.38 on Jan. 8, but has since fallen to $2.30, according to GasBuddy.com.
As the weather warms up and more Americans hit the road for spring break and summer, prices typically rise about 60 cents a gallon from mid-February to June 1, says Patrick DeHaan, senior petroleum analyst at GasBuddy. “This year, if (the oil price) drop sticks around, we could see far less of a rally. It could be even half of that,” he said.
That same drop, however, has caused pain in other areas. Shares of oil companies have sagged in recent weeks as analysts’ cut their earnings predictions for the industry. The S&P 500 Energy Index is down 8.5% for the year. ExxonMobil’s stock opened at a 52-week low Thursday, though it rebounded later and finished up 0.8% for the day.
So far, any signs that domestic stockpiles and production could wane have been faint. The Trump administration has been vocal about its desire to remove regulations that hinder U.S. production. And that “could see a surge of domestic crude driving down prices even further,” said Alfonso Esparza, market analyst at brokerage firm OANDA.
U.S. oil output is expected to increase to an average of 9.7 million barrels per day in 2018, with more production in the Permian shale region of Texas and New Mexico, as well as the Gulf of Mexico, expected, according to the U.S. Energy Information Administration.
“U.S. crude oil production is now expected to reach an all-time high in 2018,” Howard Gruenspecht, acting administrator of the E.I.A., wrote in the agency’s March 2017 Short-Term Energy Outlook. “Rising crude oil production from non-OPEC countries, especially from the United States, is expected to curb upward pressure on oil prices for much of 2017.”
Despite the sell-off Thursday, Razaqzada, the analyst at Forex.com, said he expected oil prices to rebound to the $60 to $70 range by the end of the year.
Demand typically rises in the summer, and some analysts expect the effects of OPEC-led supply cuts, which went into effect Jan. 1, to become more noticeable later this year.
Crude oil prices continue to trade off of yearly highs, but have failed to breakout significantly for the 2017 trading year. As such, traders continue to wait for a market catalyst to cause the commodity to breach key values of either support or resistance. Key news for this week includes the release of US employment data this Friday. Expectations for US NFP (Feb) is set at +190k, while the US Unemployment Rate is set to be released at 4.7%.
Technically the price of crude oil remains in an ongoing daily trading range, which is depicted below. Current daily resistance remains located at the January 3rd 2017 peak at $55.67. Alternatively, crude oil prices remain supported above the January 10th low at $51.34. As prices continue to ping between these values, traders may continue to reference these points for a potential market breakout.
Monday’s trading has prices in the middle of this $4.33 range. Currently short term momentum is pointed lower, with the price of crude remaining under the 10 Day EMA found at $53.63. If prices continue to decline this week, traders may look for crude oil to return to support and potentially breakout lower. In the event of a bearish breakout, traders may use a 1x extension of this range to find preliminary pricing targets near $47.01. Alternatively if prices remain supported, traders may look for crude oil to bounce and retest resistance at the standing 2017 high. In this scenario, bullish breakout targets for crude oil may be identified near $60.00.
In the event that prices fail breakout, traders may elect to trade the continuing range or look for opportunities elsewhere.
Reversing Nigeria’s Deferred $100bn Crude Oil Income
Recently, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, reiterated that on account of militancy in the Niger Delta, Nigeria could not earn about $100 billion oil revenue in 10 years as he also opened up on plans to reverse the loss. Chineme Okafor reports
Though not entirely new, Kachikwu in a podcast he released recently stated that between $50 and $100 billion was not earned by Nigeria in 10 years because of frequent attacks on oil and gas infrastructure by the Niger Delta militants.
Kachikwu explained that at the peak of militancy within these periods, oil revenue dropped drastically, and production particularly ebbed from 2.2 million barrels per day (mbpd) to one million barrels per day in 2016
He said: “As at 2016 on the average and looking at it historically that Nigeria was losing $50 to $100 billion as a result of the disruption.”
He specifically added that the country’s oil and gas industry could not earn over $7 billion from January to October 2016, saying that over the last decade spanning through various administrations, the industry suffered critical disruptions to operations resulting in the unearned incomes.
According to Kachikwu, the unearned income also included that which international oil companies (IOCs), independent producers as well the Nigerian National Petroleum Corporation (NNPC) could not take from their operations in the fields.
“This is a problem that has consistently been there even before the government of President Obasanjo, and it went on into other governments. It is a problem that seems to be intractable. So, it is a difficult undertaking to try to embark on trying to resolve it once and for all, but we are very bullish about this,” Kachikwu said to buttress the longstanding existence of militancy and its impacts on Nigeria’s oil production.
Similarly, the Nigerian Petroleum Development Company (NPDC), a subsidiary of NNPC had from February 2015, consistently reported substantial deferred revenue averaging N25 billion per month from the a subsisting force majeure declared by Shell Petroleum Development Company (SPDC) following the destruction of 48-inch Forcados crude oil export line.
Plans to reverse the trend
While the NNPC has repeatedly said in its monthly operations report that comprehensive measures to limit the impacts of oil assets destructions on the financials of the corporation were being initiated but with some success from stopgap approaches, Kachikwu in the podcast disclosed some detailed plans he would adopt to end this.
According to the minister, a 20-point agenda which include periodic engagements with communities and stakeholders in town hall meetings, inter-agency collaboration, ring-fenced state approach to security of oil installations, as well as security hold-hands efforts to guarantee peace and investment on state basis would be adopted.
He also listed focused investments in gas-to-power, incentive for peace scheme, massive revamp of social infrastructure bases of the communities and establishment of a Niger Delta Development Fund Initiative, as the other approaches he hoped would end militancy in the Niger Delta.
Christened “Oil Sector Militancy Challenges…Roadmap to Closure,” Kachikwu explained that the new approach was aimed at instituting permanent peace in the oil-producing region.
According to him, the Niger Delta crisis, coupled with the 45 per cent drop in oil production, worsened the financial challenges of the President Muhammadu Buhari administration. He added that the new measures would address this financial challenge to the government.
Additionally, the minister emphasised that the crisis resulted in attacks on oil and gas facilities and the sub-optimal performance of the country’s refineries. He noted that Nigeria was unable to meet its international obligations as a result of the militancy.
Kachikwu explained that the new measure would build on existing efforts initiated by the government to end the crisis. According to him, a seven-point roadmap that included engaging the oil-producing communities and sustaining the Amnesty Programme for the repentant militants were in existence already.
Insisting that the administration was determined to tackle militancy and achieve peace in the region, Kachikwu noted that it would be bullish in its focus on remedying the environment of the Niger Delta, which he said was also rich enough for aqua tourism for revenue generation.
To clean up the environment, Kachikwu said Buhari would continue to implement the existing seven-point agenda and other behind-the-scenes engagements of relevant stakeholders.
According to him, the first point on the 20-point agenda he plans to launch would be for oil companies to engage the state governments and communities on issues affecting a particular state.
The second point, he noted, would focus on inter-agency collaborations between the Ministries of Petroleum Resources and the Niger Delta, as well as the NDDC on crosscutting development and operational issues of the region. The third point would be a ring-fenced approach to ending the militancy. On this, he stressed that the Federal Government would stop dealing with militancy as a national issue and adopt a state-by-state approach to ending it on the ground that each state in the region appeared to have peculiar challenges that prompt militancy in their areas.
Kachikwu said government would focus on creating 100,000 jobs in each of the oil-producing states in the Niger Delta in the next five years, while the Amnesty Programme would be decentralised because Federal Government can no longer fund the programme alone as a result of dwindling oil revenue.
Another plan under the agenda Kachikwu launched would be to adopt the “Security Hold Hands Approach”, which according to him, was aimed at strengthening security in the region through the collaboration of all the relevant agencies.
He also identified peace and investment initiatives as another focus in the new agenda, and stressed that peace encourages investment while crisis serves as a disincentive to investment. He noted that the agenda would encourage states in the region to continue to pursue peace in exchange for improved investment.
The minister equally added that there would be a core business focus wherein the Federal Government will continue to attract business opportunities to the Niger Delta, stressing that at the core of the militancy was the lack of economic opportunities for inhabitants of the region to earn decent lives for themselves and their families.
He said the setting up of cottage industries and business startups in the region will encourage violent agitators to shun militancy and engage in business activities that will earn them good incomes.
Kachikwu said that oil companies would be encouraged to embark on the revamp of oil and gas infrastructure in the Niger Delta, in addition to focusing on the “clean-up of our mess”. He noted in this respect, that the government had launched the Ogoni clean-up exercise which should restore the environment of Ogoni land.
Other aspects of the 20-point plan included the domestication of oil and gas business opportunities to achieve greater participation of the people of the oil-producing region without excluding other Nigerians.
He said the government would also encourage education programmes in the Niger Delta to make the people embrace education and shun militancy. He stated that the Amnesty Programme would be launched on a state-by-state basis to create opportunities for 5,000 to 10,000 youths in each states of the region.
Further on security and peace, Kachikwu explained that ensuring justice for all the stakeholders in the region would be the major plank of the agenda, while the government would continue to strengthen the military and other security agencies to maintain peace as it would no longer accept instances of militants holding the country to ransom.
Crude oil has slumped over 2 percent this year and could see more pain ahead if OPEC does not stick to production cuts it agreed upon in December.
“I think oil is in a very dangerous zone now precisely because demand is not there,” Boris Schlossberg, BK Asset Management’s managing director of foreign exchange strategy, said Wednesday on CNBC’s “Power Lunch.”
A build in crude oil inventory Wednesday as reported by the Energy Information Administration in fact sent oil higher, settling up 17 cents to $52.34.
“The irony of this whole thing is that OPEC cuts are holding, but the demand is not there. And the longer oil wallows at this $52 level, the more likely it’s actually going to go to the downside. And if it trips to $50 a barrel stops, I think it could really tumble very quickly. So I think we’re in a perilous territory,” Schlossberg said, adding that he wouldn’t be long crude oil at this juncture.
OPEC agreed in December for the first time since 2008 to cut output by 1.2 million barrels per day.
Indeed, oil has traded in a range of roughly $50 to $55 per barrel, said David Seaburg, head of sales trading at Cowen & Company. But he has a more bullish forecast.
“I think from a trading perspective here for the near term, it looks like it’s a level you probably want to step in and take a look from the long side,” Seaburg said Wednesday on CNBC’s “Power Lunch.”
Seaburg said he’d need to see more government data in coming weeks to see if the OPEC agreement is holding, but he cited hedge funds’ extreme positioning in crude oil as a positive for crude.
He said the fact that crude oil held up in Wednesday trading despite the build in inventory was a bullish near-term signal in the face of crowded long positions in the space. He said that meant investors are comfortable with where oil will be in the next three to six months. “They’re comfortable with that, therefore you probably get a trade here I think for the near-term to the upside,” he said.
The XLE, a popular energy exchange-traded fund that tends to rise and fall with the price of crude oil, is down more than 4 percent this year. ConocoPhillips, one constituent in the XLE, is set to break out of a range in which it has traded since December, said Andrew Keene of AlphaShark.com.
After seeing some unusual options activity from an institutional buyer of the April 52.5 calls (which would imply a rally of nearly 6 percent by April expiration) Keene said he would buy the COP April 52.5/55 call spread for 60 cents, or $60 per options spread.
Oil rebounds as US sanctions individuals and entities over Iran missile test
Sergei Karpukhin | Reuters
A worker stands next to a pump jack at an oil field Sergeyevskoye owned by Bashneft company north from Ufa, Bashkortostan, Russia.
Oil prices recovered on Friday after the United States announced sanctions related to Iran’s ballistic missile test, and on signs big oil producers are cutting output.
The Trump administration on Friday rolled out new measures against 13 individuals and 12 entities following Tehran’s ballistic missile test.
U.S. President Donald Trump said “nothing is off the table” in dealing with the country, which has seen its oil exports surge after the lifting of international sanctions last year under the previous U.S. administration.
“The ‘trumperament’ of the new U.S. president is being tested by Iran and soon maybe also by Russia and China,” Olivier Jakob, managing director of consultancy PetroMatrix, said. “And that is adding some geopolitical support to crude oil.”
Iran relationship a black swan for oil?
Brent crude futures were up 27 cents at $56.83 a barrel by 1:07 p.m. ET (1807 GMT). Brent was on track to gain more than 2 percent on the week, its first significant weekly rise this year.
Prices held their gains after oilfield services firm Baker Hughes reported U.S. drillers added 17 oil rigs in the last week. The count has been recovering since June and now stands at 583 rigs, compared with 467 rigs last year.
Comments by Russian energy minister Alexander Novak that oil producers had cut their output as agreed under a deal with OPEC, also helped to support prices, analysts said.
He said that 1.4 million barrels per day (bpd) was cut from global oil output last month as part of the deal.
Prices briefly pared gains after the official start of the day session, reflecting pent-up selling pressure following the U.S. jobs report for January, according to John Kilduff, founding partner at energy hedge fund Again Capital.
“The energy market did not necessarily like the weak wage component of the employment report. Gasoline demand is already weak, due to higher prices, so that hurts energy disproportionately,” he told CNBC.
News that Norway restarted a field that produces 100,000 barrels per day also weighed on prices, Kilduff said.
Analysts said oil’s advance could run out of steam quickly. PVM Oil Associates noted the market “is sandwiched between supportive OPEC-led output cuts and the bearish impact of a resurgence in U.S. crude production.”
The prospect of more oil output from Nigeria and also from other non-OPEC producers such as Brazil also looms.
“Record speculative length threatens to trigger a sharp price fall as unease builds amid the ongoing wait for a conclusive upside breakout,” Commerzbank said in a note.
— CNBC’s Tom DiChristopher contributed to this report.