Crude Oil Turns Lower as Rally Stalls

FOX BUSINESS

By Alison Sider and Neanda Salvaterra Features Dow Jones Newswires

Oil prices moved into the red, erasing much of this week’s gains as investors took profits.

Prices had been on the rise earlier Thursday following concerns that Iraqi Kurdistan’s independence vote could hit supply from the oil-rich region and after U.S. data Wednesday showed that record-high exports of U.S. crude and additional demand from refineries helped drain 1.8 million barrels from U.S. crude inventories last week.

But investors pulled back, sending oil prices tumbling amid concerns that the rally had gone too far.

“I think more than anything there was some profit-taking here,” said Tariq Zahir, managing member of Tyche Capital Advisors. “It’s had a heck of a run.”

U.S. crude futures fell 58 cents, or 1.11%, to $51.56 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 49 cents, or 0.85%, to $57.41 a barrel on ICE Futures Europe.

Prices also tumbled after data-tracking firm Genscape said storage at the Cushing, Okla., storage hub rose to 65.1 million barrels, up by close to 2 million barrels from Friday.

Oil prices have been climbing the past few weeks amid renewed faith in the efforts of the Organization of the Petroleum Exporting Countries and other major oil producers to eliminate the global supply glut.

But bearish factors are on the horizon: U.S. production has continued to rise and producers could take advantage of the higher prices to ramp up more quickly.

Oil’s recent rally represents a return to “the optimism we saw earlier in the year, that the reduction of supply through the 1.8 million [barrel] cut is basically taking hold and tightening the market,” said Gene McGillian, research manager at Tradition Energy.

Still, he said the market could be vulnerable to a selloff if data in the coming weeks don’t continue to show the glut of oil is shrinking.

U.S. and global oil benchmarks have diverged in recent weeks, with the gap between the two trading at its widest in more than two years.

Brent has been bolstered by tightening supplies abroad. This week it also jumped on fears that the Iraqi Kurdish independence referendum would lead to conflicts that could interrupt the flow of Kurdish oil. West Texas Intermediate, the U.S. reference price, has lagged behind as U.S. fuel makers were hobbled by Hurricane Harvey and unable to process as much crude.

The price gap has led to a surge of exports from the U.S. as buyers take advantage of the discount. U.S. crude exports rose to a record 1.5 million barrels a day last week, according to the U.S. Energy Information Administration.

“The only real crude surplus left is in the U.S., and, as we whittle down the last of the stored barrels, the world is turning to the U.S. as the supplier of last resort,” Energy Aspects analysts wrote in a research note.

Some expect oil prices to continue to rise.

“We are still viewing this as a near term bull market capable of fresh highs,” Jim Ritterbusch, president of Ritterbusch & Associates, wrote in a client note. “We expect an upside reversal tomorrow amidst various contract expirations.”

Gasoline futures fell 2.22 cents, or 1.34%, to $1.6318 a gallon. Diesel futures fell 1.43 cents, or 0.77%, to $1.832 a gallon.

Oil Mixed but Set for Weekly Gain

CNBC

An oil pump jack in the oil town of Gonzales, Texas.

Getty Images
An oil pump jack in the oil town of Gonzales, Texas.

Oil prices were mixed on Friday, but both Brent and U.S. crude were set to chalk up another weekly gain as investors bet that efforts to cut a global glut are working and that the demand outlook is improving.

U.S. crude was down 4 cents at $51.52 a barrel at 0450 GMT, having spent much of the session slightly higher. The contract is heading for a fourth consecutively weekly gain and is on track for a 9 percent advance this month.

Brent rose 14 cents, or 0.2 percent, to $57.55 a barrel, heading for a fifth weekly climb and a 10 percent gain for September.

Oil climbs to five-month high as tension over Iraqi Kurdistan rises

Oil climbs to five-month high as tension over Iraqi Kurdistan rises   

The price gains, most of them in the last two-and-a-half weeks, have come as traders anticipated renewed demand from U.S. refiners that were resuming operations after shutdowns due to Hurricane Harvey.

Major world oil producers outside the United States have also indicated they will stick with output cuts to limit supply.

They are getting support from Turkey’s threats to cut off a pipeline from the Kurdish region of Iraq after a referendum where Kurds voted overwhelmingly in favor of independence.

“(There is) an increasingly positive view from the supply side, with potential Kurdish production disruption, and a plethora of energy agencies suggesting global demand is increasing,” said Jeffrey Halley, senior marketanalyst at OANDA in Singapore.

Turkish President Tayyip Erdogan said this week he could use force to prevent the formation of an independent Kurdish state and might close the oil “tap”.

The Kurdish region exports about 500,000 barrels a day through a pipeline that runs through Turkey to the Mediterranean Sea.

Turkey promised on Thursday to deal only with the Iraqi government on crude, the office of Iraqi Prime Minister Haider al-Abadi said.

Rising Demand Will Continue To Drive The Rally In Crude Oil Prices

Forbes

null Opinions expressed by Forbes Contributors are their own.

As the rally in oil prices gathers steam, it’s important to place the quoted prices in context.  The price most frequently quoted for “crude oil” is the front-month West Texas Intermediate contract.  So, today’s oil price of “$52 per barrel” is the value of the contract for delivery at the hub in Cushing, OK by November 30th, a contract that settles on October 20th. The lag between the settlement date and the delivery date represents the necessity to transport the physical commodity.

So, there’s really no “spot” price for crude in the Western world, as it doesn’t settle on a day of/cash basis.  U.S. oil producers are compensated for their output based on the value of the futures contract for the month corresponding to the delivery of the oil.  Of course those producers use futures along the forward curve to hedge production in upcoming periods.

That type of market doesn’t necessarily exist around the world.  Saudi Arabia, for instance, sells its crude to China on a price that it sets monthly with an eye on oil futures, specifically for Brent crude. Other, less-developed oil nations sell at prices that more closely resemble a true spot market price.

This has given rise to a theory, propagated most widely by Goldman Sachs, that OPEC is trying to engineer backwardation, a situation in which future month oil contracts trade at lower values than current ones.  In the past week’s rally the oil futures curve has indeed moved into backwardation, albeit slightly so, as the October 2018 contract is trading 17 cents below the November 2017 contract as of this writing.  As oil is physical commodity that has a storage cost, the curve is usually upward-sloping  (a situation known as contango) and as U.S producers hedge future production based on the curve, lower future prices hurt hedgers more than those who sell in the spot market.

One might wonder if September’s move in oil futures is a product of a Saudi-led drive to restrain U.S. oil production by getting American producers to lock in future production prices at lower prices than current ones.  Goldman has been pushing this theory, but as I noted in this column, I often take the other side of Goldman’s commodity calls.  My move into extremely bullish positions on stocks of oil producers at the end of August was at odds with Goldman’s Post-Harvey analysis and has been a very lucrative one for my clients.

A worker, wearing a hardhat featuring a Union Flag, also known as a Union Jack, stands near the drill rig at the Preston New Road pilot gas well site, operated by Cuadrilla Resources Ltd., near Blackpool, U.K., on Tuesday, Sept. 19, 2017. Cuadrilla started drilling the pilot well that is expected to reach depth of 3,500 meters, a core sample will be taken from the well and examined to determine where to drill the horizontal well it intends to frack. Photographer: Matthew Lloyd/Bloomberg

 Quite simply, oil prices are rising because demand is increasing.  Commodities analysts can navel-gaze about the shape of the forward curve ad nauseum, but those same analysts have consistently underestimated demand for oil and its refined products.   The International Energy Administration last week increased its global oil demand forecast for 2017 for the third time in three months.  It receives much less publicity, but this week’s petroleum supply report from the U.S. Energy Information Administration showed motor gasoline product supplied rose 0.6% on a year-on-year basis  last week.  Product supplied is the closest indicator to actual U.S. gasoline consumption, and after running at or slightly below zero growth for much of 2017 that indicator has turned solidly positive in recent weeks.

So, the IEA confirms that growth outside the U.S. is rising and the EIA confirms that U.S. demand for petroleum products is rising.  That’s bullish, and if traders haven’t figured out that this demand increase is going to last more than a month or two eventually they will have to.  Then the oil markets will move back into contango, and there really is nothing stopping a move in U.S. crude to $60/barrel, a level nearly reached by international benchmark Brent crude this week.

I’ll have stock plays for this rising environment in my next Forbes column.

Major Iranian oil company says oil at $60 a barrel could stabilize the energy market

CNBC

  • Oil prices near $60 a barrel could stabilize the energy market, a senior executive at a major Iranian state-owned oil company said
  • Saeid Khoshrou, director of international affairs at the National Iranian Oil Company, said low prices gave investors the wrong impression
  • Khoshrou said the ratio between Iran’s reserves and production capacity indicate it is a great investment destination

Iran is now exporting about 2.2 million barrels of oil per day: Executive   

Oil prices near $60 a barrel could stabilize the energy market and signal for investors to invest and develop petroleum fields, according to a senior executive at a major Iranian state-owned oil company.

Saeid Khoshrou, director of international affairs at the National Iranian Oil Company, told CNBC on Tuesday that low, fluctuating prices in the oil market gave investors the wrong impression.

When oil prices hover near $60, “a lot of investors maybe can invest on developing petroleum fields, but when it’s $45 or $40, it’s a different story,” Khoshrou told CNBC’s “Capital Connection.”

Brent was trading around $59 a barrel on Tuesday afternoon in Asia trade, while U.S. light crude was around $52.

“I think something around $60 would stabilize the market,” he said, adding the price point is “good enough to attract investors to the field, especially in the Middle East, where there are a lot of low cost fields that can easily … be developed, feed the market (and) meet the requirement in the market.”

Iran’s energy exports suffered previously under international sanctions imposed amid concerns that it was developing nuclear weapons. Those sanctions were lifted earlier this year, allowing the OPEC producer to export oil to the international energy market.

The lifting of the sanctions, along with Iran’s low cost of production and untapped energy reserves, make the country a potentially attractive investment destination. But some experts suggest that many major firms are not ready to commit to Iran deals.

Currently, on average, Iran’s cost of production is around $10 per barrel, according to Khoshrou, and he pointed to the ratio between Iran’s oil reserves and production capacity as an indication of why the country is a good prospect for oil investors.

OPEC data showed that in 2016, Iran’s proven crude oil reserves were about 157.2 billion barrels, while its production capacity was about 3.65 million barrels a day.

Proven reserves indicate an estimated quantity of all hydrocarbons — crude oil or natural gas — which geological and engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing conditions, according to OPEC.

“If you take a look at the reserve and the production … this ratio itself gives the signal (that) it is a good place to put money and invest on it.”

But investment potential in Iran could be a moot point if oil prices falter again next year, despite the OPEC production cuts that are currently in place.

“For next year, we see very strong growth in non-OPEC supply,” Peg Mackey, chief OPEC oil analyst at the International Energy Agency (IEA), told CNBC’s “Squawk Box.”

Mackey said the IEA expects a growth of 1.5 million barrels a day in 2018 from non-OPEC producers compared with demand growth of 1.4 million barrels a day.

“We see slightly higher non-OPEC growth versus demand growth. In that situation, it’s hard to imagine a dramatic decline in inventories next year,” she said.

Khoshrou added that currently Iran is producing around 3.8 million barrels per day, in line with the country’s OPEC production quota, against a capacity of around 4 million barrels a day.

Crude Oil Price Update – Major Pivot Price on Weekly Chart is $50.59

NASDAQ
By James Hyerczyk,

Shutterstock photo

U.S. West Texas Intermediate crude oil traded in a narrow range most of the week as traded shrugged off the weekly inventories data while waiting for a key OPEC and non-OPEC members meeting that would determine whether the current program to trim production would be extended or deepened.

November West Texas Intermediate crude oil futures settled the week at $50.66, up $0.22 or +0.44%.

As it turned out, the oil producing group reached no decision and may wait until January before deciding whether to extend their output curbs beyond the first quarter.

Russia’s energy minister said no decision was expected before January, although other ministers suggested such a decision could be taken before the end of this year.

“I believe that January is the earliest date when we can actually, credibly speak about the state of the market,” Russian Energy Minister Alexander Novak said. Other ministers suggested a decision could come this year.

In other news, oil services firm Baker Hughes reported that oil rigs operating in U.S. fields fell by 5 to a total of 744.

The fact that the OPEC and non-OPEC members failed to reach a decision wasn’t much of a surprise. Nonetheless, the market continued to be supported by stronger demand forecasts from OPEC and the International Energy Administration. Some bullish traders also believe the market is getting close to rebalancing.

Weekly Technical Analysis

The main trend is up according to the weekly swing chart. The trend turned up two weeks ago for the first time this year. If the upside momentum continues then look for a test of the next main top at $52.62. The main trend will turn back down on a trade through $46.14.

The main range is $58.37 to $42.80. Its retracement zone is $50.59 to $52.42. This zone was tested last week. This zone is very important to the longer-term structure of the market. Essentially, we are currently testing 50% for the year so a sustained move over $50.59 will be bullish and a sustained move under $50.59 will be bearish.

The short-term range is $46.14 to $51.11. Its retracement zone is $48.63. If buyers can’t overcome $50.59 then look for possible pullback into $48.63 to $48.04.

Weekly Forecast

Based on last week’s close at $50.66 and last week’s price action, the direction of the November WTI crude oil market this week is likely to be determined by trader reaction to the major 50% level at $50.59.

A sustained move over $50.59 will indicate the presence of buyers. This will also indicate that investors are willing to buy strength. This move could generate the upside momentum needed to challenge the major Fibonacci level at $52.42 and the main top at $52.62. Look for an acceleration to the upside if this top is taken out with conviction.

A sustained move under $50.59 will signal the presence of sellers. This will indicate that investors would rather buy a pullback into support instead of strength. If the selling pressure persists then look for a possible correction into $48.63 to $48.04. Since the main trend is up, buyers are likely to come in on a test of this zone.

This article was originally posted on FX Empire

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc

Crude Oil: Compliance to Production Cuts Reach New Highs

BARRON’S

Goldman Sachs reiterated its year-end Brent forecast of $58

per barrel on strong fundamentals.

Members of the Joint Organization of the Petroleum Exporting Countries or OPEC/Non-OPEC Ministerial Monitoring Committee met in Vienna Friday to review scenarios to be considered at future meetings, including its production cut agreement, which expires in March 2018.

oil energy rig
oil energy rig Illustration: Pixabay

The group will be considering extending cuts, but aren’t expected to make a specific recommendation.

Brent crude is up modestly so far Friday to around $56.32. United States Oil (USO) is down 0.34%.

Energy Select Sector SPDR ETF (XLE) is up 0.13%.

Goldman SachsDamien Courvalin, in a note published yesterday, wrote that the meeting will likely be focused on compliance. Compliance to production cuts reached new highs of 110% in August, which has helped ease inventory excess. Courvalin stayed his year-end Brent forecast of $58 per barrel based on “current strong fundamentals.” He says:

The progress made in the rebalancing suggests that it is in OPEC’s incentive to wait before committing to an extension of the cuts. In particular, we continue to view that while the decision to cut production to normalize inventories was rational, this strategy should be followed by a gradual increase in production to capture increasing market share and revenues in 2018. While too low a level of inventories would initially support prices with shale’s growing pains delaying its supply response, it would nonetheless incentivize more investments by other producers and would undermine OPEC’s goal of sustainably growing market share and revenues in our view.

Oil rises after Iraq signals possible OPEC cut extension

CNBC

  • Oil prices rose on Wednesday
  • OPEC was considering extending or deepening supply cuts, Iraq’s oil minister said
  • U.S. crude stocks rose last week, API said Tuesday

Oil worker in Iraq

Essam Al-Sudani | Reuters

Oil prices rose on Wednesday after Iraq’s oil minister said OPEC and other crude producers were considering extending or even deepening a supply cut to curb a global glut, while a report showed a smaller-than-expected increase in U.S. inventories.

U.S. West Texas Intermediate (WTI) crude futures were up 33 cents, or 0.7 percent, at $49.81 a barrel at 0419 GMT. Brent crude futures climbed 23 cents, or 0.4 percent, to $55.37.

While options being considered by the Organization of the Petroleum Exporting Countries and other producers include an extension of cuts in output by months, it is premature to decide on what to do beyond March, when the agreement expires, Iraqi oil minister Jabar al-Luaibi told an energy conference in the United Arab Emirates on Tuesday.

OPEC and producers including Russia have agreed to reduce output by about 1.8 million barrels per day until March 2018 in a bid to reduce global oil inventories and support prices.

Some producers think the pact should be extended for three or four months, others want an extension until the end of 2018, while some, including Ecuador and Iraq, think there should be another round of supply cuts, al-Luaibi said.

Why oil markets could turn volatile this week

Why oil markets could turn volatile this week  

But such moves are unlikely to have a big impact, said Georgi Slavov, head of research at commodities brokerage Marex Spectron.

“Demand is not great for crude oil and I don’t see how this will change any time soon. We do not see stronger demand for Q4 2017, which means supply needs to be controlled even more tightly,” Slavov told a briefing in Singapore.

“That won’t be easy as the productivity of oil rigs in the U.S. is expected to rise, so they can get more oil out of the same amount of rigs.”

Meanwhile, U.S. crude stocks rose last week while gasoline and distillate stocks decreased, data from industry group the American Petroleum Institute (API) showed on Tuesday.

Crude inventories rose by 1.4 million barrels in the week to Sept. 15 to 470.3 million, compared with expectations for an increase of 3.5 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 422,000 barrels, API said.

Official figures on stockpiles and refinery runs will be released by the U.S. Department of Energy later on Wednesday.