Oil bounces above $63 after slide, but glut worries persist

CNBC

  • American Petroleum Institute says U.S. crude oil inventories are falling.
  • Fearing a glut, OPEC pushes for a supply curb.
  • Trump support for Saudi Arabia makes oil supply cut harder, say analysts.

Oil bounced above $63 a barrel on Wednesday to claw back some of the previous day’s 6 percent plunge, lifted by a report of an unexpected decline in U.S. crude inventories.

The American Petroleum Institute (API) said on Tuesday that U.S. crude inventories last week fell by 1.5 million barrels, easing concerns for now that a supply glut is building up.

“The move yesterday was extremely sharp; after such moves you expect to have some rebound,” said Olivier Jakob, analyst at Petromatrix. “The API reported a stock draw – it is not a big one but at least it’s not a 10-million-barrel build.”

Brent crude, the global benchmark, was up 92 cents to $63.45 per barrel at 0944 GMT and traded as high as $63.67. U.S. crudegained 98 cents to $54.41.

Yet Wednesday’s bounce did little to reverse overall market weakness. Crude fell more than 6 percent in the previous session and world equities tumbled as investors grew more worried about economic growth prospects.

Brent has fallen by more than 25 percent since reaching a 4-year high of $86.74 on Oct. 3, reflecting concern about forecasts of slowing demand in 2019 and record supply from Saudi Arabia, Russia and the United States.

Worried by the prospect of a new supply glut, the Organization of the Petroleum Exporting Countries is talking about a U-turn just months after increasing production.

OPEC, plus Russia and other non-OPEC producers, is considering a supply cut of between 1 million barrels per day (bpd) and 1.4 million bpd at a Dec. 6 meeting, sources familiar with the issue have said.

Still, Saudi Arabia may find taking action to support prices harder, analysts say, given U.S. pressure to keep them low and President Donald Trump standing by the Saudi crown prince in the wake of the murder of journalist Jamal Khashoggi.

Trump vowed on Tuesday to remain a “steadfast partner” of Saudi Arabia despite saying that Saudi Crown Prince Mohammed bin Salman may have known about a plan to murder Khashoggi.

“It is more difficult to expect a supply cut when you have the U.S. president giving full support to Saudi Arabia and asking Saudi to maintain low prices,” Jakob said.

Analysts at JBC Energy said Trump’s statement “highlights the potential for political fallout for Saudi itself from a hefty cut in production.”

Oil rises on expected OPEC cut, but markets remain wary 

CNBC

  • The Organization of the Petroleum Exporting Countries (OPEC), de-facto led by Saudi Arabia, is pushing for the producer cartel and its allies to cut 1 million to 1.4 million barrels per day (bpd) of supply.
  • Despite Monday’s gains, crude prices remain almost a quarter below their recent peaks in early October, weighed down by surging supply and a slowdown in demand growth.

A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Getty Images
A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Oil prices rose on Monday as traders expected top exporter Saudi Arabia to push producer club OPEC to cut supply towards the end of the year.

Despite that, market sentiment remains weak on signs of a demand slowdown amid deep trade disputes between the world’s two biggest economies, the United States and China.

Front-month Brent crude oil futures, the international benchmark for oil prices, were trading at $67.29 per barrel at 0045 GMT, up 53 cents, or 0.8 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures, were up 61 cents, or 1.1 percent, at $57.07 per barrel.

“The market’s bullish radar is still waiting for OPEC+ to deliver a sizeable cut number,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

The Organization of the Petroleum Exporting Countries (OPEC), de-facto led by Saudi Arabia, is pushing for the producer cartel and its allies to cut 1 million to 1.4 million barrels per day (bpd) of supply to adjust for a slowdown in demand growth and prevent oversupply.

Despite Monday’s gains, crude prices remain almost a quarter below their recent peaks in early October, weighed down by surging supply and a slowdown in demand growth.

On the demand-side, Japan’s October crude oil imports – which are the world’s fourth biggest, but which are in structural decline because of a falling population and improving energy efficiency – fell by 7.7 percent from the same month last year, to 2.77 million barrels per day (bpd), the Ministry of Finance said on Monday.

This comes as supply in the United States is surging.

U.S. energy firms added two oil rigs in the week to Nov. 16, bringing the total count to 888, the highest level since March 2015, a weekly report by energy services firm Baker Hughes said on Friday.

The rising drilling activity points to a further increase in U.S. crude oil production, which has already jumped by almost a quarter this year, to a record 11.7 million bpd.

Put off by a surge in supply and the slowdown in demand, financial markets have been becoming increasingly wary of the oil sector, with money managers cutting their bullish wagers on crude futures and options to the lowest level since June 2017, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

The speculator group cut its combined futures and options positions on U.S. and Brent crude during the week ended Nov. 13 to the lowest since June 27, 2017.

Oil rises on expected OPEC cuts, but surging US supply drags

CNBC

  • Oil prices on Friday were mainly supported by expectations that the Organization of the Petroleum Exporting Countries would start withholding supply soon.
  • Meanwhile, U.S. crude oil production reached another record last week.

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Andrew Burton | Getty Images

Oil prices rose on Friday amid expectations of supply cuts from OPEC, although record U.S. production dragged.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.84 per barrel at 0353 GMT, up 38 cents, or 0.7 percent, from their last settlement.

Brent crude oil futures were up 48 cents, or 0.7 percent, at $67.10 per barrel.

Prices were mainly supported by expectations the Organization of the Petroleum Exporting Countries (OPEC) would start withholding supply soon, fearing a renewed rout such as in 2014 when prices crashed under the weight of oversupply.

OPEC’s de-facto leader Saudi Arabia wants the cartel and its allies to cut output by about 1.4 million barrels per day (bpd), around 1.5 percent of global supply, sources told Reuters this week.

However, Morgan Stanley warned a cut by the Middle East dominated producer cartel may not have the desired effect.

“The main oil price benchmarks – Brent and WTI – are both light-sweet crudes and reflect this glut,” the U.S. bank said.

“OPEC production cuts are usually implemented by removing medium and heavier barrels from the market but that does not address the oversupply of light-sweet.”

Due to the structural oversupply that has emerged in the market from record production by many countries, Morgan Stanley said that “OPEC cuts are inherently temporary (because) all they can do is shift production from one period to another”.

While OPEC considers withholding supply, U.S. crude oil production reached another record last week, at 11.7 million bpd, according to U.S. Energy Information Administration (EIA) data published on Thursday.

U.S. output has surged by almost a quarter since the start of the year.

The record output meant U.S. crude oil stocks posted the biggest weekly build in nearly two years.

Crude inventories soared 10.3 million barrels in the week to Nov. 9 to 442.1 million barrels, the highest level since early December 2017.

This surge contributed to oil prices falling by around a quarter since early October, taking many by surprise.

“Oil bulls, us included, have capitulated and we no longer see oil climbing to $95 per barrel next year,” Bank of America Merrill Lynch said in a note.

While sentiment has turned bearish, some analysts warn that 2019 could be tighter than expected.

“We expect 2019 oil demand to reach 101.1 million bpd,” natural resources research and investment firm Goehring & Rozencwajg said, up from just under 100 million bpd this year.

At the same time, the firm said production outside North America was set to disappoint.

Add OPEC’s expected supply cuts, and Goehring & Rozencwajg said “those investors who are able to adopt a contrarian stance … and stomach the volatility … are being presented with an excellent investment opportunity” to buy into oil after the recent slump.

Bank of America agreed, saying “we believe oil is oversold and will likely bounce up from the current levels, as OPEC+ dials back production in December”.

Oil falls more than 1% after Trump urges OPEC not to cut supply

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  • Oil prices fell more than 1 percent on Tuesday, with benchmark Brent crude slipping below $70 per barrel and U.S. crude under $60.
  • The move comes after U.S. President Donald Trump put pressure on OPEC not to cut supply to prop up the market.
  • The U.S.-dollar hovered near 16-month highs on Tuesday, making oil more expensive for importers using other currencies.

Oil prices fell more than 1 percent on Tuesday, with benchmark Brent crude slipping below $70 per barrel and U.S. crude under $60, after U.S. President Donald Trump put pressure on OPEC not to cut supply to prop up the market.

The U.S.-dollar hovered near 16-month highs on Tuesday, making oil more expensive for importers using other currencies.

Brent crude oil futures was down $1.03 at $69.09 per barrel by 0900 GMT. West Texas Intermediate (WTI) crude oil futures was $1.00 lower at $58.93. Both benchmarks are down 20 percent since peaking at four-year highs in early October.

“Sky-high production in the U.S., coupled with incremental barrels coming from Saudi Arabia and Russia, is starting to impact oil market balances,” Bank of America/Merrill Lynch analysts said in a note to clients, adding: “Crude oil inventories are starting to increase once again.”

Trump has made it clear he wants oil prices to fall.

“Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” the president said in a Twitter post on Monday.

That led to a sharp price drop on Monday and the sell-off continued into Tuesday.

“This tweet certainly did not help prices,” ING commodities strategist Warren Patterson said.

Extraction from American shale fields over the last decade has propelled U.S. oil production to record highs this year with crude output now at 11.6 million barrels per day (bpd), helping make the United States self-sufficient in energy.

Merrill Lynch says U.S. crude production will break through 12 million bpd in 2019, supporting oil exports to the rest of the world.

Oil production is not just rising in the United States. Kazakhstan said on Tuesday its oil output rose 4.8 percent to 74.5 million tonnes in the first 10 months of 2018, equivalent to 1.82 million bpd.

Top crude exporter Saudi Arabia has watched with alarm how supply has started to outpace consumption, fearing a repeat of a glut that brought a price crash in 2014.

Saudi Energy Minister Khalid al-Falih said on Monday the Organization of the Petroleum Exporting Countries agreed there was a need to cut oil supply next year by around 1 million bpd from October levels to prevent oversupply.

Dutch bank ING said an abundance of global supply as well as the threat of economic slowdown meant “cuts over 2019 are unavoidable.”

“It is becoming clearer that as we move closer towards 2019, the market will see a sizeable surplus at least over the first half of 2019,” ING said.

Oil prices jump 2 percent after Saudi Arabia announces December supply cut

CNBC

  • Oil prices rose by about one percent on Monday after top exporter Saudi Arabia announced a cut in supply for December, seen as a measure to halt a market slump that had seen crude decline by 20 percent since early October.
  • International benchmark Brent crude oil futures were at $71.11 per barrel at 0051 GMT, up 93 cents, or 1.3 percent from their last close.
  • U.S. West Texas Intermediate (WTI) crude oil futures were at $60.73 per barrel, up 54 cents, or 0.9 percent from their last settlement.

Oil pumpjacks in silhouette at sunset.

Oil pumpjacks in silhouette at sunset.

Oil prices jumped more than 1.5 percent on Monday after top exporter Saudi Arabia announced a supply cut in December and other producers also considered reductions heading into 2019.

Front-month Brent crude futures, a benchmark for global oil prices, were at $71.59 per barrel at 0749 GMT, up 2 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures rose 1.6 percent to $61.15 per barrel.

Saudi Arabia plans to reduce oil supply to world markets by 500,000 barrels per day (bpd) in December, its energy minister said on Sunday, as the country faces uncertain prospects in getting other producers to agree to a coordinated output cut.

Khalid al-Falih told reporters that Saudi Aramco’s customer nominations would fall by 500,000 bpd in December versus November due to seasonal lower demand. The cut represents a reduction in global oil supply of about 0.5 percent.

Saudi Arabia is the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC).

An official from Kuwait, also an OPEC member, on Monday said that major oil exporters over the weekend had “discussed a proposal for some kind of cut in (crude) supply next year”, although the official did not provide any detail.

OPEC’s second-biggest producer Iraq has also indicated it may join in such a move.

Peter Kiernan, lead energy analyst at the Economist Intelligence Unit in Singapore, said OPEC was “focused on mitigating downside risks” after crude prices declined by around 20 percent over a month following a supply surge, particularly from the top three producers, the United States, Russia and Saudi Arabia.

For consumers, the 20 percent oil price fall since early October was a relief.

“This (price fall) is great news for the externally challenged economies of Asia like Indonesia and Philippines, India too, and helps also where inflation has been a concern,” Robert Carnell, chief economist and Head of Research at ING Asia, told the Reuters Global Markets Forum on Monday.

Major emerging economies like India, Indonesia and Turkey came under strong pressure earlier this year as their currencies slumped against the dollar just as oil prices surged, eroding demand.

Beyond demand concerns, a big concern for Saudi Arabia and other traditional producers from the Middle East-dominated OPEC is the surge in U.S. output.

U.S. energy firms last week added 12 oil rigs in the week to Nov. 9 looking for new reserves, bringing the total count to 886, the highest level since March 2015, Baker Hughes energy services firm said on Friday.

The rig count indicates U.S. crude output, already at a record 11.6 million bpd, will increase further.

“One thing that is abundantly clear, OPEC is in for a shale shocker as U.S. crude production increased to a record 11.6 million barrels per day and will cross the 12 million threshold next year,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.