Oil set for weekly decline amid surging US output, expected OPEC increase

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Reuters

KEY POINTS
  • Brent crude oil futures were at $70.38 per barrel at 0440 GMT, down 37 cents, or 0.5 percent, from their last close.
  • U.S. West Texas Intermediate (WTI) crude futures were down 20 cents, or 0.3 percent, at $61.61 per barrel.
RT: Venezuela oil pumps over water 150520
Oil pumps are seen in Lake Maracaibo, in Lagunillas, Ciudad Ojeda, in the state of Zulia, Venezuela.
Isaac Urrutia | Reuters

Oil prices on Friday were set to fall for the week as surging U.S. output and an expected supply increase from the Organization of the Petroleum Exporting Countries (OPEC) weighed on markets.

Brent crude oil futures were at $70.38 per barrel at 0440 GMT, down 37 cents, or 0.5 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 20 cents, or 0.3 percent, at $61.61 per barrel.

Brent is set for a weekly fall of 2.5 percent, while WTI has declined 2.6 percent so far, its second straight weekly drop.

“Oil prices have fallen as the pressure of record U.S. output levels continues to weigh,” said Mihir Kapadia, chief executive officer of Sun Global Investments.

U.S. crude oil production reached a record 12.3 million barrels per day (bpd) last week, rising by around 2 million bpd over the past year. U.S. crude exports broke through 3 million bpd for the first time this year, according to data from the Energy Information Administration.

Traders said prices also fell as Russia started sending clean oil through a pipeline towards western Europe, after several countries last week halted imports because of contamination. In Poland, the government released strategic reserves to ensure supply.

“In Eastern Europe, countries have secured supplies to offset shipments halted due to contamination,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

In the United States, analysts say supply will rise further as its export infrastructure is improved.

“One of the things that we can see in the near future is the de-bottlenecking of the Permian basin in the U.S. through new pipelines and export capacity. This will connect the world’s largest shale basin to the global oil market,” said Will Hobbs, chief investment officer for Barclays Investment Solutions.

Rising U.S. oil production has helped offset some of the disruptions from U.S. sanctions against Iran and Venezuela, and from supply cuts led by the Middle East-dominated OPEC, which started in January.

Despite these disruptions and sharp oil price rises in the first months of this year, some analysts say the long-term price risk to crude oil is skewed to the downside.

Erik Norland, senior economist at commodity derivative exchange CME Group, said “the 130 percent rise in U.S. production due to the shale oil revolution” during the past decade had created a strong and constant downside risk to oil prices, which was visible in exchange trading positions.

“Observers of the oil markets might be surprised to discover that during the past decade, out-of-the-money (OTM) put options were more expensive than OTM calls 92.5 percent of the time for crude oil,” he said.

“In other words, oil traders have spent much more time during the past decade worried about downside risks than prices heading higher,” Norland added.

Oil prices dip on record US output, but global market tense

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Reuters

KEY POINTS
  • Spot Brent crude oil futures were at $71.91 per barrel at 0239 GMT, 27 cents, or 0.4 percent, below their last close.
  • U.S. West Texas Intermediate (WTI) crude futures were down 19 cents, or 0.3 percent, at $63.41 per barrel.
RT: Offshore oil rig Norway 160211
An offshore oil rig off the coast of Norway.
Nerijus Adomaitis | Reuters

Oil prices fell on Thursday, pulled down by record U.S. crude production that led to a surge in stockpiles.

Outside the United States, however, oil markets remained tense as exemptions to U.S. sanctions on Iran expired, a political crisis in Venezuela escalates, and as producer club OPEC keeps withholding supply.

Spot Brent crude oil futures were at $71.91 per barrel at 0239 GMT, 27 cents, or 0.4 percent, below their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 19 cents, or 0.3 percent, at $63.41 per barrel.

“Crude oil prices fell sharply as stockpiles in the U.S. rose to their highest level since 2017,” ANZ bank said on Thursday.

“This comes as U.S. refineries head into the spring maintenance period, stoking fears that crude oil demand will be soft and stockpiles will continue to rise,” it added.

U.S. crude stockpiles last week rose to their highest since September 2017, jumping by 9.9 million barrels to 470.6 barrels, as production set a record high of 12.3 million barrels per day (bpd), while refining activity rates fell, the Energy Information Administration (EIA) said on Wednesday.

Outside the United States, however, oil markets remained tight amid the political crisis in Venezuela, tighter U.S. sanctions against Iran that allow no more exemptions from May, and as the Organization of the Petroleum Exporting Countries (OPEC) continues to withhold supply in order to prop up prices.

Oman’s energy minister Mohammed bin Hamad al-Rumhy said on Wednesday it was OPEC’s goal to extend the cuts, which were started in January, when they next meet in June.

Despite the desire of many OPEC members to keep withholding supply to prop up the market, the group may be forced into action.

“The Venezuelan situation will likely loom large in OPEC deliberations as ministers weigh how many additional barrels may be needed to fill an expanding supply gap that is being driven by geopolitics as opposed to geology,” Canadian bank RBC Capital Markets said.

Beyond Venezuela, analysts at Fitch Solutions also warned of risks to supply from Libya, where a civil war is threatening to cut oil fields off from markets.

The risks here are not inconsiderable, in light of rising instability in a number of key producers, notably Libya and Venezuela, ” Fitch Solutions said.

Industry profits soar

For producers, the tight market conditions mean higher profits.

Analysts at Bernstein Energy said current price levels reflected the average marginal cost for most listed oil producers.

“We have surveyed the 50 largest listed oil and gas companies globally… Based on 2018 annual reports we estimate that the global marginal cost of oil remained stable at $71 per barrel,” Bernstein said in a note on Thursday.

“This is on line with current spot prices but higher than the long-term oil forward strip price of $61 per barrel,” the note said.

“With oil prices rising more than costs, industry margins increased by more than 200 percent in 2018,” Bernstein said, resulting in industry profitability “at the highest in the last 5 years.”

Oil prices set for biggest first quarter gain since 2009 on US sanctions, OPEC

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KEY POINTS
  • U.S. West Texas Intermediate (WTI) futures were at $59.56 per barrel at 0211 GMT, up 26 cents, or 0.4 percent, from their last settlement.
  • Brent crude oil futures were up 30 cents, or 0.4 percent, at $68.12 per barrel. Brent futures are set to increase by 1.7 percent for the week and are set to climb by 27 percent for the first quarter.
RT: Oil operations Permian Basin near Midland, Texas 180823
A worker walks through an oil production facility owned by Parsley Energy in the Permian Basin near Midland, Texas, August 23, 2018.
Nick Oxford | Reuters

Oil prices rose on Friday, pushed up by ongoing supply cuts led by producer club OPEC and U.S. sanctions against Iran and Venezuela, putting the crude markets on pace to post their biggest first quarter gain since 2009.

U.S. West Texas Intermediate (WTI) futures were at $59.56 per barrel at 0211 GMT, up 26 cents, or 0.4 percent, from their last settlement.

WTI futures are set to rise for a fourth straight week and are set for a first quarter gain of 31 percent.

Brent crude oil futures were up 30 cents, or 0.4 percent, at $68.12 per barrel. Brent futures are set to increase by 1.7 percent for the week and are set to climb by 27 percent for the first quarter.

For both futures contracts, the first quarter 2019 is the best performing quarter since the second quarter of 2009 when both gained about 40 percent.

Oil prices have been supported for much of 2019 by the efforts of the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russia, together known as OPEC+, who have pledged to withhold around 1.2 million barrels per day (bpd) of supply this year to prop up markets.

“Production cuts from the OPEC+ group of producers have been the main reason for the dramatic recovery since the 38 percent price slump seen during the final quarter of last year,” said Ole Hansen, head of commodity strategy at Saxo Bank.

The price surge triggered a call by U.S. President Donald Trump on Thursday for OPEC to boost production to lower prices.

“Very important that OPEC increase the flow of Oil. World Markets are fragile, price of Oil getting too high. Thank you!” Trump wrote in a post on Twitter.

OPEC+ are meeting in June to discuss whether to continue withholding supply or not.

OPEC’s de-facto leader Saudi Arabia favors cuts for the full year while Russia, which only reluctantly joined the agreement, is seen to be less keen to keep holding back beyond September.

However, the OPEC+ cuts are not the only reason for rising oil prices this year, with analysts also pointing to U.S. sanctions on oil exporters and OPEC members Iran and Venezuela as reasons for the surge.

Despite the surging prices, analysts are expressing concerns about future oil demand amid worrying signs the global economy may move into a recession.

Saxo Bank’s Hansen said “the biggest short-term risk to the oil market is likely to be driven by renewed stock market weakness.”

Stock markets have been volatile this year amid signs of a sharp global economic slowdown.

“Business confidence has weakened in recent months … (and) global manufacturing PMIs are about to move into contraction,” Bank of America Merrill Lynch said in a note, although it added that “the services sector … continues to expand unabated.”

Given the OPEC+ cuts, however, Bank of America said it expected oil prices to rise in the short-term, with Brent prices forecast to average $74 per barrel in the second quarter.

Heading towards 2020, however, the bank warned of a recession.

Oil edges up on supply cuts, but recession fears cap market

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Reuters

KEY POINTS
  • Brent crude oil futures were at $67.46 per barrel at 0110 GMT, up 25 cents, or 0.4 percent, from their last close.
  • U.S. West Texas Intermediate (WTI) futures were at $59.31 per barrel, up 49 cents, or 0.8 percent, from their last settlement.
RT: Oil Iraq OPEC flames 161014
Flames emerge from a pipeline at the oil fields in Basra, southeast of Baghdad, Iraq, October 14, 2016.
Essam Al-Sudani | Reuters

Oil prices edged up on Tuesday, lifted by supply cuts led by producer club OPEC and U.S. sanctions against Iran and Venezuela, but signs of a sharp economic slowdown and potentially even a recession kept markets from rising further.

Brent crude oil futures were at $67.33 per barrel at 0416 GMT, up 12 cents, or 0.2 percent, from their last close.

U.S. West Texas Intermediate (WTI) futures were at $59.26 per barrel, up 44 cents, or 0.8 percent, from their last settlement.

Oil prices have been supported for much of 2019 by efforts by the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russia, who have pledged to withhold around 1.2 million barrels per day (bpd) of supply this year to prop up markets.

Prices have also been driven up by U.S. sanctions on oil exporters and OPEC-members Iran and Venezuela.

Yet analysts said oil prices would likely be higher by now if it wasn’t for a spreading economic slowdown that some say could turn into a recession soon and dent fuel consumption.

“Recession risks have risen to the highest since 2008,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Manufacturing data from Asia, Europe and North America is pointing to a sharp economic slowdown.

“Global factory output growth slowed to a 1 percent rate last quarter, and indicators point to a near stall this quarter,” said JPMorgan Chase Bank.

“Outside China, Asian industry was already contracting as we turned into the New Year, ” the U.S. bank added.

Oil prices drop almost 1 percent on concerns of a looming recession

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Reuters

KEY POINTS
  • Brent crude oil futures were at $66.56 per barrel at 0410 GMT, down 47 cents, or 0.7 percent, from their last close.
  • U.S. West Texas Intermediate (WTI) futures were at $58.52 per barrel, down 52 cents, or 0.9 percent, from their previous settlement.
Reusable: Oil pump jack leased by Devon Energy 150922
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters

Oil prices dropped by almost 1 percent on Monday, with concerns recession could be looming outweighing supply disruptions from OPEC’s production cutbacks and from U.S. sanctions on Iran and Venezuela.

Brent crude oil futures were at $66.56 per barrel at 0410 GMT, down 47 cents, or 0.7 percent, from their last close.

U.S. West Texas Intermediate (WTI) futures were at $58.52 per barrel, down 52 cents, or 0.9 percent, from their previous settlement.

Both crude oil price benchmarks have slumped by more than 3 percent since last week hitting their highest since November 2018.

Concerns about a potential U.S. recession resurfaced late last week after bearish remarks by the U.S. Federal Reserve, with 10-year treasury yields slipping below the three-month rate for the first time since 2007.

Historically, an inverted yield curve — where long-term rates fall below short-term — has signaled an upcoming recession.

Adding to the fears of a more widespread global downturn, manufacturing output data from GermanyEurope’s biggest economy, shrunk for the third straight month.

“Estimates for growth and earnings have been revised down materially across all major regions,” said U.S. bank Morgan Stanley.

ANZ bank said the darkening economic outlook “overshadowed the supply-side issues” the oil market was facing amid supply cuts led by producer club OPEC as well as the U.S. sanctions on Venezuela and Iran.

The Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies such as Russia, together referred to as ‘OPEC+’, have pledged to withhold around 1.2 million barrels per day (bpd) of oil supply this year to prop up markets, with OPEC’s de-facto leader seen to be pushing for a crude price of over $70 per barrel.