Oil prices hit highest since 2014, but analysts warn of overheated market

CNBC

  • Oil prices hit their highest levels since 2014 on Wednesday
  • A broad global market rally has also been fueling investment into crude oil futures
  • Amid the general bull-run, which has pushed up crude prices by more than 13 percent since early December, there are indicators of an overheated market

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices hit their highest levels since 2014 on Wednesday due to ongoing production cuts led by OPEC as well as healthy demand, although analysts cautioned that markets may be overheating.

A broad global market rally, including stocks, has also been fueling investment into crude oil futures.

U.S. West Texas Intermediate (WTI) crude futures were at $63.40 a barrel at 0100 GMT – 44 cents, or 0.7 percent, above their last settlement. They marked a December-2014 high of $63.53 a barrel in early trading.

Brent crude futures were at $69.15 a barrel, 33 cents, or 0.5 percent, above their last close. Brent touched $69.29 in late Tuesday trading, its strongest since an intra-day spike in May 2015 and, before that, in December 2014.

“The extension of the OPEC agreement … and declining inventories are all helping to drive the price higher,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

In an effort to prop up prices, the Organization of the Petroleum Exporting Countries (OPEC) together with Russia and a group of other producers last November extended an output cut deal that was due to expire in March this year to cover all of 2018.

The cuts, which have mostly targeted Europe and North America, was aimed at reducing a global supply overhang that had dogged oil markets since 2014.

The American Petroleum Institute said late on Tuesday that crude inventories fell by 11.2 million barrels in the week to Jan. 5, to 416.6 million barrels.

Official U.S. Energy Information Administration data is due at 1530 GMT on Wednesday.

Overheated?

Amid the general bull-run, which has pushed up crude prices by more than 13 percent since early December, there are indicators of an overheated market.

Oil in the first two quarters

Oil in the first two quarters  

In the United States, crude oil production is expected to break through 10 million barrels per day (bpd) this month, reaching levels only Russia and Saudi Arabia have.

In Asia, the world’s biggest oil consumer region, refiners are suffering from high prices and ample fuel supplies.

“One area of concern, particularly in Asia, is that of (low) refining margins … This drop in margins could reduce Asian refiners’ demand for incremental crude in the near term and weigh on global prices,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Average Singapore refinery margins this week fell below $6 per barrel, their lowest seasonal value in five years, due to high fuel availability but also because the recent rise in feedstock crude prices dented profits.

Asian oil prices are higher than in the rest of the world. While Brent and WTI are still below $70 per barrel, the average price for Asian crude oil grades has already risen above that level, to $70.62 per barrel, Thomson Reuters Eikon data showed.

MOVES-China’s Rongsheng hires crude oil trader in Singapore

December 5, 2017
Reuters Staff

SINGAPORE, Dec 5 (Reuters) – Chinese conglomerate Zhejiang Rongsheng Holding Group has hired a senior crude oil trader to be based in its Singapore office, a company official said on Tuesday.

Trader Ray Liu, formerly from BB Energy and Sinochem Corp, will join Rongsheng International Trading Co in January, said the official who declined to be named.

Rongsheng plans to start up its 400,000-barrels-per-day refinery-petrochemical project in eastern China in late 2018.

The company set up a trading office in Singapore last year which will handle crude purchases as well as the trading of oil products and petrochemicals.

Rongsheng is looking to hire more crude and oil products traders as it plans to expand operations in Singapore, the official said.

Oil prices fell more than 1 percent on Wednesday

Oil prices slide after IEA casts doubt over demand outlook

CNBC

  • Oil prices fell more than 1 percent on Wednesday, continuing Tuesday’s slide
  • Crude prices are now down by around 5 percent since hitting 2015 highs last week
  • The International Energy Agency (IEA) on Tuesday cut its oil demand growth forecast by 100,000 barrels per day (bpd) for this year and next

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices fell more than 1 percent on Wednesday, continuing Tuesday’s slide after the International Energy Agency cast doubts over the past few months’ narrative of tightening fuel markets.

Brent crude futures were at $61.33 per barrel at 0515 GMT, down 88 cents, or 1.4 percent from their last close.

U.S. West Texas Intermediate (WTI) crude was at $55 per barrel, down 70 cents, or 1.3 percent.

The price falls mean that crude prices are now down by around 5 percent since hitting 2015 highs last week, ending a 40-percent rally between June and early November.

“Crude prices dropped dramatically after the IEA forecast a gloomy outlook for the near future … The drop was arguably exacerbated by a global selloff in other commodities,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

The International Energy Agency (IEA) on Tuesday cut its oil demand growth forecast by 100,000 barrels per day (bpd) for this year and next, to an estimated 1.5 million bpd in 2017 and 1.3 million bpd in 2018.

“The oil market faces a difficult challenge in 1Q18 with supply expected to exceed demand by 600,000 bpd followed by another, smaller, surplus of 200,000 bpd in 2Q18,” the agency said.

The demand slowdown could mean world oil consumption may not, as many expect, breach 100 million bpd next year, while supplies are likely to exceed that level.

The IEA report countered the Organization of the Petroleum Exporting Countries, which just a day earlier said 2018 would see a strong rise in oil demand.

Vijayakar said a reported increase in U.S. crude inventories was also weighing on prices.

Crude oil tracks for worst day in a month

Crude oil tracks for worst day in a month  

The American Petroleum Institute (API) said on Tuesday that U.S. crude inventories rose by 6.5 million barrels in the week to Nov. 10 to 461.8 million.

U.S. government inventory data is due later on Wednesday.

On the supply side, rising U.S. output also pressured prices.

U.S. oil production has already increased by more than 14 percent since mid-2016 to 9.62 million bpd and is expected to grow further.

The IEA said non-OPEC production will add 1.4 million bpd of additional production in 2018.

The IEA’s outlook pressures OPEC to keep restraining output in order to defend crude prices, which its members rely on for revenue.

OPEC and some non-OPEC producers including Russia have been withholding production this year to end years of oversupply.

The deal expires in March 2018 but OPEC will meet on Nov. 30 to discuss policy, and it is expected to agree an extension of the cuts.

“Anything less than a full nine-month extension delivered at the Nov. 30 meeting could precipitate a sell-off,” U.S. bank Citi said.