Crude oil futures – weekly outlook: July 17 – 21

Investing.com

© Reuters.  Oil logs a gain of roughly 5% for the week © Reuters. Oil logs a gain of roughly 5% for the week

Investing.com – Oil prices settled higher for the fifth session in a row on Friday, to score a weekly gain of roughly 5% as investors cheered data suggesting that demand for oil will pick up during the second half of 2017.

The U.S. West Texas Intermediate crude August contract tacked on 46 cents, or around 1%, to end at $46.54 a barrel by close of trade Friday. It touched its highest since July 5 at $46.74 earlier.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for September delivery rose 49 cents, or 1%, to settle at $48.91 a barrel by close of trade, after touching a more than one-week peak of $49.11 earlier in the session.

For the week, WTI gained $2.31, or about 5%, while Brent rose $2.20, or roughly 4.5%, aided by reports of accelerating demand growth from the International Energy Agency, crude oil import growth in China and falling crude stocks in the U.S.

Despite recent gains, concerns over rising global supplies remained on investors’ minds.

U.S. drillers added two oil rigs in the week to July 14, energy services company Baker Hughes announced on Friday. This brings the total count up to 765, the most since April 2015, underlining concern that the ongoing rebound in U.S. shale production is derailing efforts by other major producers to rebalance the market.

In May, OPEC and some non-OPEC producers extended a deal to cut 1.8 million barrels per day in supply until March 2018.

So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya and Nigeria.

OPEC member Kuwait said on Friday it would be premature to cap Nigerian and Libyan oil production as the two African countries’ output needed to stabilize further.

A ministerial committee from OPEC and non-OPEC countries, which is headed by Gulf OPEC member Kuwait, will meet in Russia on July 24 to discuss compliance with the cuts.

Elsewhere on Nymex, gasoline futures for August jumped 3.4 cents, or about 2.3%, to end at $1.560 on Friday, for a weekly gain of around 4.1%.

August heating oil finished up 2.3 cents, or 1.6%, at $1.515 a gallon, with an increase of almost 4.6% on the week.

Natural gas futures for August delivery ticked up 1.9 cents to settle at $2.980 per million British thermal units. It saw a weekly rise of roughly 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, traders will also continue to pay close attention to comments from global oil producers for 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, July 18

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, July 19

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, July 20

The U.S. government is set to produce a weekly report on natural gas supplies in storage.

Friday, July 21

Baker Hughes will release weekly data on the U.S. oil rig count.

Eternal Sunshine of a Spotless Mind on Crude Oil

Ned Davis Research’s energy strategist Warren Pies reviews the first half and issues his outlook for the second. Why investors could benefit from a memory wipe.

Crude oil prices are on the rise today, but energy investors have been on quite a tumultuous ride so far this year. The severe ups and downs have led to excessively negative sentiment. Perhaps investors would benefit from a memory wipe.

United States Oil (USO) has risen 0.95% so far on Friday. Energy stocks, on the other hand, aren’t seeing as much of a lift with Energy Select Sector SPDR (XLE) up only 0.38%.

Ned Davis Research‘s energy strategist Warren Pies, who remains bullish on oil, titled his latest oil note “Oil — A First Half to Forget.” Last Thursday, the EIA reported that U.S. stockpiles for the week ended June 30 was more than 16 million barrels below the five-year average. Pies pointed out that a 15 million plus barrel divergence from the average is a rare occurrence, having happened only six other weeks since the mid-1990s and bodes well for crude prices. The problem: depressed sentiment. Pies wrote:

Returning to the theme of 2017, sentiment remains severely depressed. So far, the market has proven adept at finding the negative underbelly of seemingly positive data points. As each rally fizzles, more bulls capitulate.

More reason to forget the first half. Pies noted that sentiment and price action does not match fundamental data. Technical indicators have eroded and the likelihood of oil making new multi-year highs, implying a more than 30% rally, has diminished, but Ned Davis continues to “see more upside to oil prices than downside.” Basically, they’re cautiously optimistic, which is easier when you don’t remember how brutal the first half was.

Photo by CARL COURT/AFP/Getty Images

Photo by CARL COURT/AFP/Getty Images

Oil will crater unless there’s a ‘shock and awe’ cut in output, Goldman Sachs says

Oil prices could fall below $40 if the market doesn’t

get a clear catalyst to buy, Goldman Sachs said.

  • That catalyst could be further intervention by OPEC or a steady drop in U.S. crude stockpiles and the nation’s rig count, the bank said.
  • Global stockpiles are declining, but rising production in Libya and Nigeria is a concern, according to Goldman.
An employee rides his bike past barrels of petroleum products at a state-owned Pertamina fuel depot in Jakarta, Indonesia.

Darren Whiteside | Reuters
An employee rides his bike past barrels of petroleum products at a state-owned Pertamina fuel depot in Jakarta, Indonesia.

Oil prices could soon fall below $40 a barrel if investors don’t get a clear catalyst that prompts them to start buying the commodity, Goldman Sachs said on Tuesday.

The investment bank believes oil prices will not rally until traders see at least one of two things: further intervention from OPEC or a consistent drop in both U.S. crude oil stockpiles and the number of rigs operating in American fields.

“A failure for these shifts to materialize soon could push prices below $40/bbl as the market tests OPEC’s and shale’s reaction functions,” Goldman analysts wrote in a research note. “Importantly, we wouldn’t expect such a move to be volatile, as it is not driven by storage concerns like last year … but the ongoing search for a new equilibrium.”

The bank last week revised its three-month price target on U.S. crude to $47.50 a barrel, down from an earlier forecast of $55 a barrel. On Tuesday, U.S. West Texas Intermediate crude was trading at about $44, up from a recent low near $42.

“We continue to believe that there is another opportunity for OPEC to increase the cuts, but that this should be done in a ‘shock and awe’ manner, with little public announcement,” Goldman said.

 

Don't interfer in markets, US will react, says IEA chief

Despite OPEC’s cut, the US and others will bring a glut of oil to the market, says IEA’s Birol    23 Hours Ago | 03:16

Goldman notes that the 6.3 million barrel drop in U.S. crude stockpiles last week was historically high. Further, June saw declines in U.S., Japanese, Singaporean and certain European inventories that were above normal seasonal levels.

However, caution is warranted in light of growing production from Libya and Nigeria, the two OPEC members exempt from the cartel’s output-cut agreement. Exporters have agreed to remove 1.8 million barrels a day from the market through March, in a bid to shrink global stockpiles and boost oil prices.

OPEC has invited Libya and Nigeria to attend a technical meeting this month. Producers have reportedly begun to consider asking the two nations to limit their output.

 

OPEC-led deal to cut supply not a quick solution: IHS Market vice chair - shale to continue to be an important part of oil supply

US shale rebound baked in for the rest of the year, could drag in 2018: IHS Markit vice chair    Tuesday, 11 Jul 2017 | 2:29 AM ET | 03:20

Goldman further cautioned that this week’s drop in U.S. inventories will likely be relatively small, due to seasonal trends and an anticipated jump in the amount of oil flowing from the U.S. government’s strategic petroleum reserve into commercial stockpiles.

The U.S. rig count also rose last week after logging only its second decline in the previous week, frustrating market watchers hoping for a drop in drilling activity among U.S. shale oil producers.

“Given that the market is now out of patience for large stock draws and increasingly concerned about next year’s balances, we believe that price upside will need to be front-end driven, coming from observable near-term physical tightness and signs of a U.S. shale activity slowdown on a sustained basis in coming weeks,” Goldman concluded.

 

Crude oil shortage some day

RESOURCE INVESTOR
Daily Energy Market Analysis
By Phil Flynn

Believe it or not the globe is headed for an oil shortage. I know many find that hard to believe, especially in this shale-crazed world where there is the belief that shale oil will fill all voids, even as investment in oil exploration falls to the lowest level since the 1940s.
I am not the only one thinking this way. Dow Jones reported Amin Nasser, the chief executive of Saudi Arabian Oil Co., or Saudi Aramco, is predicting that the world is heading for an oil-supply shortage that booming U.S. shale production can’t prevent. He pointed out that in the past three years there has been a major reduction in investments in long-term crude-petroleum exploration and development projects. “The long-term situation of oil supplies…is becoming worrying,” Nasser said at the World Petroleum Congress–a large oil-industry conference in Istanbul. He added, “the dearth of investment now would lead to fewer barrels in future, even with shale production.” He said the world needs 20 million barrels a day of new production in the next five years to meet demand. “Investments in smaller increments, such as shale oil, will just not cut it,”  Nasser said, according to Dow Jones.
Dow Jones also reported that Nasser’s concerns about oil supplies falling short are shared by the International Energy Agency, a Paris group that advises industrialized oil-consuming countries. But others such as Exxon Mobil Corp. have said technology, better methods, and new, recent oil discoveries will keep supplies plentiful for the foreseeable future. Bloomberg says that Saudi Aramco, which plans what could be the world’s biggest initial public offering, will invest more than $300 billion during the next decade to maintain its spare oil-production capacity and explore for more natural gas, according to Nasser.
Yet, crude oil is still struggling today as a rising U.S. oil rig count offset news about OPEC nations working bywords putting a cap on Libyan and Nigerian oil output. It seems that there will be a meeting that will decide about a cap for countries without an OPEC quota and that may send a signal to the market that indeed there will be a cap on global OPEC oil output. Yet, we have rising U.S. oil production and the fact that the oil rig count rose yet again by 12 rigs, 7 for oil and 5 rigs for natural gas.
But are the rig counts telling the whole story? The number of active oil and gas rigs in the United States rose again this week, this time by 12, resuming what was the US shale patch’s impressive run of 23 weeks of steady gains, prior to last week’s decrease of a single rigs. But if you look at the breakdown it is not as impressive on the shale front. Oilprice.com pointed out even as we added 7 oil rigs last week, after dropping by 2 the week before, we saw that Alaska added back 4 rigs this week that they lost recently to routine summer maintenance. Put another way, those four Alaskan rigs do not frack, and are merely used to manage the terminal decline of aging Alaskan oil fields. That leaves a net three new (productive) oil rigs added this week, but where?
The Gulf of Mexico did not add any rigs and stayed static at 21 rigs, so no new off-shore rigs added there. North Dakota shale added no new rigs staying steady at 52, so no new rigs added in the Bakken shale fields. In the basin breakout, we see that no new rigs added in the Eagle Ford shale fields. There was a loss of one rig this week in the Permian basin, a warning sign about the overall health of the shale play. So, in the three largest LTO shale basins, and the Gulf of Mexico there was a loss of one rig. Oilprice.com points out that the rigs were added in the Woodford basin in Oklahoma. Was this due to an extremely low break-even there making mid to low $40s WTI profitable, or maybe because lease requiremensuressure that wells are drilled, even if one must postpone completions until the prices rise? Aren’t drilled but uncompleted wells also rising? Oilprice.com says that, “it appears the U.S. shale market is reaching an inflection point in the mid-40s. With no gains in rigs for two weeks now in the largest basins, maybe the market is speaking? Will anybody listen?”
We also get Fed speak this week. Fed Chair Janet Yellen will be testifying and the market is pricing in more hawkish news on the rate front. Dollar strength may be a bit of a headwind.

Crude oil prices firm, set for biggest weekly gain since mid-May

Sample bottle of crude oil are seen in this illustration photo June 1, 2017.     REUTERS/Thomas White/Illustration

Illustration photo of sample bottles of crude oil Thomson Reuters

SINGAPORE (Reuters) – Crude oil futures on Friday were on track for their biggest weekly gain since mid-May, ending five weeks of losses with prices underpinned by a decline in U.S. output.

U.S. crude futures have added 4.6 percent this week, while benchmark Brent has gained 4.2 percent. That marks the biggest rise for both markets since the week ending May 19.

U.S. crude was trading up 0.2 percent, or 8 cents, at $45.01 a barrel at 0024 GMT on Friday, with Brent climbing 0.2 percent, or 7 cents, to $47.49 a barrel.

Crude prices hit a 10-month low last week in the face of a mounting supply glut, but data indicating a fall in U.S. production has bolstered markets this week.

U.S. crude output dropped 100,000 barrels per day (bpd) to 9.3 million bpd last week, the steepest weekly fall since July 2016.

Meanwhile, the North Sea crude oil market is finally showing signs of long-lost strength, suggesting that some of the pessimism that has driven down oil futures this month and created a record bet against a price rise may be unjustified.

On Thursday, about 6 million barrels of North Sea Brent crude were being stored on ships, down from four-month highs of as many as 9 million last week, and trading sources said it seemed now refineries were starting to take in more cargoes.

In recent weeks, funds have been unloading long speculative positions, reducing bets on higher prices, while brokerages including Goldman Sachs and Societe Generale have cut their 2017 forecasts for crude prices.

SocGen on Thursday estimated U.S. crude futures would average $47.50 a barrel in the third quarter, down from previous expectations for $55.

Global oil supplies remain ample despite output cuts of 1.8 million bpd by the Organization of the Petroleum Exporting Countries and other producers since January.

“The market’s calls for further cuts from OPEC continue to be rejected by the oil group,” ANZ said in a note.

“UAE Energy Minister Suhail Al Mazrouei was the latest minister to suggest there are no plans or talks on further curbs. This follows on from comments from Russia that such a topic is not on the table.”

OPEC has exempted Nigeria and Libya from the curbs, leaving them free to ramp up output that had been sapped by local unrest.

Libyan oil production is nearing 1 million bpd, a Libyan source with direct knowledge of the matter told Reuters.

(Reporting by Naveen Thukral; Editing by Joseph Radford)