Political risks may be supporting oil prices, but that’s likely just short term, JP Morgan says

KEY POINTS
  • Oil prices jumped on Monday after Saudi Energy Minister Khalid al-Falih indicated there was a consensus among OPEC and allied oil producers to continue limiting supply.
  • Still, the current price support is likely short-lived due to the rise of U.S. shale energy, which has shortened the market cycle for oil, according to a J.P. Morgan expert.
  • “It’s difficult to make a case why oil prices materially move up from here,” said Scott Darling, J.P. Morgan’s head of Asia Pacific oil and gas research.

Oil prices jumped on Monday after Saudi Arabia indicated a possible rollover of output curbs amid political supply risks, but that support is likely to be short-lived due to fundamental changes in the energy industry, an expert said on Monday.

“It’s alright to talk about supply-side risks, but that’s sort of near-term … I don’t think expectations for oil prices have actually gone up,” said Scott Darling, J.P. Morgan’s head of Asia Pacific oil and gas research.

That’s because of the rise of U.S. shale energy and slowing demand due to global economic uncertainties, Darling told CNBC’s “Squawk Box.” J.P. Morgan expects OPEC to extend its oil output cuts to 2020.

Oil prices jumped on Monday after Saudi Energy Minister Khalid al-Falih indicated there was a consensus among OPEC and allied oil producers to continue limiting supply.

Falih said the main option discussed at a ministerial panel meeting during the day was for a rollover of the output curbs agreed by OPEC and non-members in the second half of 2019. Still, he said, “things can change by June.”

OPEC, Russia and other non-member producers, an alliance known as OPEC+, agreed to reduce output by 1.2 million barrels per day from Jan. 1 for six months, a deal designed to stop inventories building up and weakening prices.

Brent crude futures were at $73.23 a barrel at 12:06 p.m. HK/SIN, up $1.02, or 1.4%, from their last close. Brent closed down 0.6% on Friday.

J.P. Morgan’s forecast for Brent crude is $75 per barrel by the end of the second quarter of 2019. For the full year, however, Brent crude will average $71 a barrel for 2019 and will weaken to $60 a barrel from 2021, said Darling.

Darling’s comments come as the market expects Iranian oil exports to drop further in May and Venezuelan shipments could fall again in coming weeks due to U.S. sanctions.

Moreover, tensions between Saudi Arabia and Iran are running high after last week’s apparent attacks on two Saudi oil tankers off the UAE coast and another on Saudi oil facilities inside the kingdom.

Riyadh accused Tehran of ordering the drone strikes on oil pumping stations, for which Yemen’s Iran-aligned Houthi group claimed responsibility. The UAE has blamed no one for the tanker sabotage. Iran has distanced itself from both sets of attacks.

The attacks come as the United States and Iran spar over Washington’s tightening of sanctions aimed at cutting Iranian oil exports to zero, and an increased U.S. military presence in the Gulf over perceived Iranian threats to U.S. interests.

Still, the current price support is likely short-lived due to the rise of U.S. shale energy, which has shortened the market cycle for oil, according to the J.P. Morgan expert.

“It’s difficult to make a case why oil prices materially move up from here,” said Darling.

—Reuters contributed to this report.

Oil rises as Middle East tensions mounts, set for weekly gains

CNBC

Reuters

KEY POINTS
  • Brent crude futures were at $73.00 a barrel at 0303 GMT, up 38 cents, or 0.5%, from their last close, rising for a fourth straight session. Brent was up 3.4% for the week, on track for its first gain in three weeks.
  • U.S. West Texas Intermediate (WTI) crude futures were at $63.32 per barrel, up 46 cents, or 0.7%. WTI was also up for a fourth day and was headed for a weekly gain of 2.7%, the first rise in four weeks.
RT: Iraq oil OPEC 181212
A worker is seen at the new CPF3 oil station in the Halfaya oilfield in southern of Maysan province, Halfaya, Iraq December 12, 2018.
Essam al-Sudani | Reuters

Oil prices rose again on Friday and were on track for the first weekly gains this month, as rising tensions in the Middle East stoked fears of supply disruptions.

Brent crude futures were at $73.00 a barrel at 0303 GMT, up 38 cents, or 0.5%, from their last close, rising for a fourth straight session.

Brent was up 3.4% for the week, on track for its first gain in three weeks.

U.S. West Texas Intermediate (WTI) crude futures were at $63.32 per barrel, up 46 cents, or 0.7%. WTI was also up for a fourth day and was headed for a weekly gain of 2.7%, the first rise in four weeks.

Saudi-led military coalition in Yemen carried out several air strikes on the Houthi-held capital Sanaa on Thursday after the Iranian-aligned movement claimed responsibility for drone attacks on two Saudi oil pumping stations earlier in the week.

Earlier this week, U.S. staff were evacuated from the American embassy in Baghdad, while U.S. President Donald Trump ordered the deployment of an aircraft carrier group, B-52 bombers and Patriot missiles to the Middle East.

“When tensions are this high, with the U.S. deploying a sizable military force, even a mistake or a tactical error by Iran could ignite the Middle East powder keg,” Stephen Innes, head of trading and market strategy at SPI Asset Management told Reuters by email.

“There are lots of supply risks with tensions this high,” he said, adding prices could test 2019 highs reached in April.

Still, Trump has told his top advisers he does not want to get the United States involved in a war with Iran, three U.S. officials said on Thursday.

The market is also awaiting a decision from the Organization of the Petroleum Exporting Countries (OPEC) and other producers over whether to continue with supply cuts that have boosted prices more than 30% so far this year.

A meeting of OPEC’s ministerial monitoring committee in Saudi Arabia this weekend will assess member states’ commitment to a deal reducing oil production, Iraq’s oil minister said on Thursday.

Oil rises amid escalating Middle East tensions

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Reuters

KEY POINTS
  • Brent crude futures were at $72.16 a barrel at 0349 GMT, up 39 cents, or 0.5%, from their last close. Brent closed up 0.7% on Wednesday.
  • U.S. West Texas Intermediate (WTI) crude futures were at $62.41 per barrel, up 39 cents, or 0.6%, from their previous settlement. WTI closed up 0.4% in the last session.
Reusable: Offshore oil drill Libya 150803
Offshore oil platforms are seen at the Bouri Oil Field off the coast of Libya.
Darrin Zammit Lupi | Reuters

Oil prices rose on Thursday for a third straight session, as the risk of conflict in the Middle East stoked fears of supply disruptions, negating an unexpected rise in U.S. inventories.

Brent crude futures were at $72.16 a barrel at 0349 GMT, up 39 cents, or 0.5%, from their last close. Brent closed up 0.7% on Wednesday.

U.S. West Texas Intermediate (WTI) crude futures were at $62.41 per barrel, up 39 cents, or 0.6%, from their previous settlement. WTI closed up 0.4% in the last session.

Analysts said oil was drawing support from heightened tensions in the Middle East, with helicopters carrying U.S. staff from the American embassy in Baghdad on Wednesday out of apparent concern about perceived threats from Iran.

While the gain in U.S. inventories overnight is helping to cap prices, so too is uncertainty about whether OPEC and other producers will maintain into the second half of the year supply cuts that have boosted prices more than 30% so far in 2019.

The Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday that world demand for its oil would be higher than expected this year.

“Though supply-side disruptions remain supportive of oil prices, OPEC has yet to release indicative statements on supply plans,” Benjamin Lu, commodities analyst at Phillip Futures in Singapore, told Reuters by email.

Supply losses from OPEC members Iran and Venezuela, now under U.S. sanctions, have deepened the impact of the OPEC-led production restrictions.

The so-called OPEC+ group of producers, which includes Russia, meets next month to review whether to maintain the pact beyond June.

U.S. crude inventories rose unexpectedly last week to their highest since September 2017, while gasoline stockpiles decreased more than forecast, the Energy Information Administration (EIA) said.

Crude stocks swelled by 5.4 million barrels, surprising analysts who had expected a decrease of 800,000 barrels for the week ended on May 10.

Oil drops on surprise US stockpile rise, but Middle East tensions support

CNBC

Reuters

KEY POINTS
  • Brent crude futures were at $71.04 a barrel at 0358 GMT, down 20 cents, or 0.3%, from their last close. Brent closed 1.4% higher on Tuesday.
  • U.S. West Texas Intermediate (WTI) crude futures were at $61.38 per barrel, down 40 cents, or 0.7%, from their previous settlement. WTI closed up 1.2% in the previous session.
RT: Oil refinery Libya 131218
Ismail Zitouny | Reuters

Oil prices fell on Wednesday after data showed a surprise rise in U.S. crude stockpiles and Chinese industrial output for April grew less than expected, but prices were supported by mounting tensions in the Middle East.

Brent crude futures were at $71.04 a barrel at 0358 GMT, down 20 cents, or 0.3%, from their last close. Brent closed 1.4% higher on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures were at $61.38 per barrel, down 40 cents, or 0.7%, from their previous settlement. WTI closed up 1.2% in the previous session.

U.S. crude stockpiles unexpectedly rose last week, while gasoline and distillate inventories increased, data from industry group the American Petroleum Institute showed on Tuesday.

Crude inventories rose by 8.6 million barrels in the week to May 10 to 477.8 million, compared with analysts’ expectations of a decrease of 800,000 barrels.

Crude stocks at the Cushing, Oklahoma, delivery hub rose by 2.1 million barrels, API said.

The U.S. Energy Department’s Energy Information Administration (EIA) reports official numbers later today.

“If the EIA report confirms a strong build we could see that weigh on oil prices…but too many geopolitical risks remain that should keep prices supported,” Edward Moya, senior market analyst at OANDA told Reuters by email.

Oil prices have drawn support after Saudi Arabia on Tuesday said armed drones struck two of its oil pumping stations, two days after the sabotage of oil tankers near the United Arab Emirates, while the U.S. military said it was braced for “possibly imminent threats to U.S. forces in Iraq ” from Iran-backedforces.

The attacks took place against a backdrop of U.S.-Iranian tension following Washington’s decision this month to try to cut Iran’s oil exports to zero and to beef up its military presence in the Gulf in response to what it said were Iranian threats.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) on Tuesday said that world demand for its oil would be higher than expected this year as supply growth from rivals including U.S. shale producers slows. That points to a tighter market if the exporter group refrains from raising output.

Elsewhere, growth in China’s industrial output slowed more than expected to 5.4% in April from a 4-1/2 year high in March, reinforcing views that Beijingwill have to roll out more stimulus measures as a trade war with the United States intensifies.

Oil prices edge up, but US-China trade tensions cap gains

CNBC

Reuters

KEY POINTS
  • Brent crude futures were at $70.27 a barrel at 0104 GMT, up 6 cents, or 0.1%, from their last close. Brent ended the previous session little changed.
  • U.S. West Texas Intermediate (WTI) crude futures were at $61.17 per barrel, up 12 cents, or 0.2%, from their previous settlement. WTI closed the last session steady on the day.
Reusable: Oil storage refinery Australia Caltex Oil 141014
Jason Reed | Reuters

Oil prices inched higher on Tuesday, though gains were checked amid an escalation in the trade war between the United States and China.

Brent crude futures were at $70.27 a barrel at 0104 GMT, up 6 cents, or 0.1%, from their last close. Brent ended the previous session little changed.

U.S. West Texas Intermediate (WTI) crude futures were at $61.17 per barrel, up 12 cents, or 0.2%, from their previous settlement. WTI closed the last session steady on the day.

Analysts said the U.S.-China trade war was overshadowing the market, though market fundamentals provided some support.

“A full-blown trade war would have lasting consequences on global growth, seriously limiting the upside for energy demand. Disruptions have balanced the market, but lower demand and rising U.S. production could make for a quick reversal,” said Alfonso Esparza, senior market analyst, OANDA.

China defied a warning from U.S. President Donald Trump and moved to impose higher tariffs on a range of U.S. goods including frozen vegetables and liquefied natural gas.

Focus was also on the Middle East after Saudi Arabia on Monday said that two of its oil tankers were among those attacked off the coast of the United Arab Emirates and described it as an attempt to undermine the security of crude supplies amid tensions between the United States and Iran.

The U.S. Energy Department said on Monday that it was confident global oil markets are well supplied.