Expect A Bounce In WTI Prices

Oilprice.com

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We are still in a period of headline risk in financial markets generally. Stocks, bonds and currencies are all reacting to news on subjects as diverse as trade, North Korea, and Italian politics. Neither Italian political turmoil nor an on again, off again relationship with North Korea are anything new, but the prospect of an escalating trade war has traders in every market worried.

The bond and currency markets are reacting as you might expect, with the U.S. 10 Year yield falling and the Dollar gaining ground as the “risk-off” trade gathers pace.

Both have seen a bounce off obvious levels, 95 for the Dollar Index and 2.75 for 10 Year yields, but for now the trends remain intact.

Stocks are a different story. U.S. equities are holding up remarkably well and remain close to the top of an upward recovery channel that has been in place since April. The feeling seems to be that healthy corporate profits and reasonably strong economic data trump (if you’ll forgive the pun) the headline risks.


Geopolitics:

As always, geopolitical risk as it relates to oil is focused on the Middle East. The Trump administration seems to have picked a side in the ongoing conflict between Saudi Arabia and Iran, increasing the risk of the proxy wars between the two rivals in Yemen and Syria growing into full-blown open warfare. However, with the Saudis now getting U.S. support they will probably be content to wait and see the effects of renewed U.S. sanctions and, as this article at foreignpolicy.com posits, that also makes aggression from Iran far less likely.

All in all, more simmering looks more likely than a full blow-up so the upward pressure on oil that we have seen recently from the Middle East will fade into the background for a while.

The situation in Europe brings on a sense of déjà vu. It is eerily reminiscent of 2012, when the many announcements of the death of the European Union were somewhat premature. There is some risk here, but history suggests that this too shall pass.

Supply:

The geopolitical situation in the Middle East has, of course, been a major factor in supply considerations in recent days and while that has influenced WTI on several occasions, the main upward push has been in Brent. Even more fuel has been added to that by the OPEC led cuts in production have remained in place despite some reports of problems.

At the same time, six weeks of gains in the North American rig count and the conventional wisdom that U.S. and Canadian production are being, or will be, ramped up to compensate for reduced global supply. In reality though, the rig count steadied last week after six weeks of gains and the EIA numbers showed a larger than expected draw on inventories.

Demand:

The potential effects of a trade war loom large. The effectiveness of the OPEC led production cuts has been magnified by the improving prospects for global growth, and that is now at risk. However, this too comes under the category of headline risk. Consistency has not been a hallmark of the Trump administration so far, and there have already been several changes of tone of the tariff issue. Another could easily prompt a quick reversal in oil.

Technical Factors

The long WTI trade was getting increasingly crowded and once a reversal or correction came that made it likely that it would be fairly sharp. We are, however, now approaching the bottom of the long-term upward channel in place since last September, and some support around or just above the $65 level can be expected.

Brent crude oil rises for a sixth day as supplies tighten amid strong demand

CNBC

  • Oil markets have been lifted by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), but the potential of renewed U.S. sanctions against Iran is also pushing prices higher.

Brent crude oil rose for sixth day on Tuesday, passing $75 a barrel, on expectations that supplies will tighten because fuel is rising at the same time the United States may impose sanctions against Iran and OPEC-led output cuts remain in place.

Brent crude oil futures climbed to as high as $75.20 a barrel in early trading on Tuesday, the highest since Nov. 27, 2014. Brent was still at $75 a barrel at 0311 GMT up 29 cents, or 0.4 percent, from its last close.

Brent’s six-day rising streak is the most since a similar string of gains in December and it is up by more than 20 percent from its 2018 low in February.

Oil Russia

Sergei Karpukhin | Reuters

U.S. West Texas Intermediate (WTI) crude futures were at $68.98 a barrel, up 34 cents, or 0.5 percent from their last settlement. On Thursday, WTI rose to as high as $69.56, the most since Nov. 28, 2014.

Markets have been lifted by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) which were introduced in 2017 with the aim of propping up the market.

The potential of renewed U.S. sanctions against Iran is also pushing prices higher.

Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA said new sanctions against Tehran “could push oil prices up as much as $5 per barrel.”

The United States has until May 12 to decide whether it will leave the Iran nuclear deal and re-impose sanctions against OPEC’s third-largest producer, which would further tighten global supplies.

“Crude prices are now sitting at the highest levels in three years, reflecting ongoing concerns around geopolitical tensions in the Middle East, which is the source of nearly half of the world’s oil supply,” ANZ bank said.

OPEC’s efforts to tighten markets are being led by top exporter Saudi Arabia, where state-controlled oil firm Saudi Aramco is pushing for higher prices ahead of a partial listing planned for later this year or 2019.

“Oil strength is coming from Saudi Arabia’s recent commitment to get oil back up to between $70 to $80 per barrel as well as inventory levels that are back in the normal range,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

OPEC’s supply curtailments and the threat of new sanctions are occurring just as demand in Asia, the world’s biggest oil consuming region, has risen to a record as new and expanded refineries start up from China to Vietnam.

One of the few factors that has limited oil prices from surging even more is U.S. production, which has shot up by more than a quarter since mid-2016 to over 10.54 million barrels per day (bpd), taking it past Saudi Arabia’s output of around 10 million bpd.

As a result of its rising output, U.S. crude is increasingly appearing on global markets, from Europe to Asia, undermining OPEC’s efforts to tighten the market.

Oil prices rise amid risk of supply disruptions

CNBC

  • Oil prices rose on Tuesday amid worries there could be a high risk of disruptions to supply.
  • Traders said those risks included potentially spreading conflict in the Middle East and renewed U.S. sanctions against Iran.

Oil fracking California

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Oil prices rose on Tuesday amid worries there could be a high risk of disruptions to supply, especially in the Middle East.

Brent crude oil futures were at $71.69 per barrel at 0326 GMT, up 27 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were up 32 cents, or 0.5 percent, at $66.54 a barrel.

Traders said oil markets were receiving general support due to a sense that there were high risks of supply disruptions, including a potentially spreading conflict in the Middle East, renewed U.S. sanctions against Iran and falling output as a result of political and economic crisis in Venezuela.

“With so many potential supply disruptors in play and few signs that the current market upheaval will end any time soon, traders continue to pay the geopolitical risk premium,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA in Singapore.

“Oil prices should remain bid … at least through the Iran nuclear deal deadline (May 12) if not for the remainder of 2018,” he added.

Oil markets have generally been well supported this year, with Brent up by around 16 percent from its 2018-low in February, due to healthy demand which comes as the producer cartel of the Organization of the Petroleum Exporting Countries (OPEC) leads supply cuts aimed at tightening the market and propping up prices.

US output soars

Beyond OPEC’s production restraint and concerns about supply disruptions, the main market driver in oil has been the United States, where crude production has soared by almost a quarter since mid-2016 to 10.53 million barrels per day (bpd), largely thanks to a booming shale industry.

Only Russia pumps out more oil currently at almost 11 million bpd.

“U.S. shale producers have been quietly capitalizing on higher oil prices with increasing rig counts seen. A staggering amount of 73 rotary rigs have been placed since January 2018,” said Benjamin Lu of Phillip Futures in a note on Tuesday.

“As such, we expect a softening in crude oil prices as markets adjust from a bullish streak,” he added.

The American Petroleum Institute (API) is due to publish weekly U.S. fuel inventory data later on Tuesday while official government data, including on production, is due from the U.S. Energy Information Administration (EIA) on Wednesday.

Oil prices could rally to $100 a barrel if Middle East tensions ‘really kick off,’ analyst says

CNBC

  • “I don’t think its unfeasible to see triple-digit oil prices at some point this year if things really kick off in the Middle East,” Anish Kapadia, founder and managing director of Akap Energy, told CNBC’s “Street Signs” on Friday.
  • Both benchmarks were on track to post their biggest weekly gain in more than eight months on Friday.
  • World leaders continued to mull over military action on Friday, in response to a suspected chemical attack in Syria over the weekend.

What you see is a shift in the oil market, says energy expert

What you see is a shift in the oil market, says energy expert  

Oil prices could soon skyrocket to more than $100 a barrel amid escalating tensions in the Middle East, one oil analyst told CNBC Friday.

Crude futures surged to highs not seen since December 2014 earlier in the week, underpinned by greater geopolitical uncertainty in Syria and elevated concerns over the prospect of imminent military action by Western powers.

“I don’t think its unfeasible to see triple-digit oil prices at some point this year if things really kick off in the Middle East,” Anish Kapadia, founder and managing director of Akap Energy, told CNBC’s “Street Signs” on Friday.

A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.

Brittany Sowacke | Bloomberg | Getty Images
A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.

He added market participants had been “laughed out the room” when they projected crude futures to reach either $60 or $70 a barrel six months ago. But heightened tensions in the Middle East had since brought about the prospect of oil prices soaring to more than $100 a barrel later this year, he added.

Geopolitical premium ‘alive and well’

Both benchmarks were on track to post their biggest weekly gain in more than eight months on Friday, shortly after President Donald Trump‘s comments about potential missile strikes and reports of dwindling global oil stocks.

Brent crude was trading at $72.26 during lunchtime deals on Friday, up around 0.3 percent, while WTI traded at $67.35, approximately 0.4 percent higher. Both benchmarks have gained about $5 since the start of the week.

An uptick in oil prices followed incendiary comments from Trump on Wednesday. The U.S. president tweeted missiles “will be coming,” in response to a suspected chemical attack in Syria over the weekend. He has since sought to dial back such explosive rhetoric, raising the prospect that an attack on Syria may not be as imminent as it first appeared.

Nonetheless, world leaders continued to mull over military action in the war-torn country on Friday.

President Donald Trump

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President Donald Trump

“Trump’s will-he-or-won’t-he antics are here to stay and will, therefore, ensure that the geopolitical risk premium remains alive and well,” Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note Friday.

He added oil prices were likely to continue to extend their recent gains in the near term.

However, the International Energy Agency (IEA) said Friday it “remained to be seen” whether recently elevated oil prices could be sustained.

In the Paris-based organization’s latest monthly report, the group left its forecast for oil demand unchanged at 99.3 million barrels per day (bpd) in 2018. The IEA’s outlook for supply also remained the same, as it projected non-OPEC growth to reach 1.8 million bpd this year.

Oil prices rise on Middle East tensions, healthy demand

CNBC

  • Oil prices rose on Wednesday, supported by tensions in the Middle East and healthy global demand.
  • Rising U.S. output from the United States continued to weigh on markets.
  • Saudi Arabia’s Crown Prince Mohammed bin Salman arrived in to Washington for a state visit.

Pump jacks in an oil field over the Monterey Shale formation near Lost Hills, Calif.

Getty Images
Pump jacks in an oil field over the Monterey Shale formation near Lost Hills, Calif.

Oil prices rose on Wednesday, supported by tensions in the Middle East and healthy global demand , although rising U.S. output from the United States continued to weigh on markets.

U.S. West Texas Intermediate (WTI) crude futures were at $63.82 a barrel at 0027 GMT, up 28 cents, or 0.4 percent, from their previous close.

Brent crude futures were at $67.66 per barrel, up 24 cents, or 0.4 percent.

Saudi Arabia’s Crown Prince Mohammed bin Salman arrived in to Washington for a state visit, raising market speculation the United States could reimpose sanctions on Iran, following rewnewed criticism of the 2015 nuclear deal.
“The presence of the Saudi Crown Prince MBS in Washington and his clear agenda to ramp up pressure on Iran, has for me, been the key driver… of oil, which rose strongly,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Energy consultancy FGE said it was likely that the United States would reimpose sanctions on Iran soon, resulting in a 250,000 to 500,000 barrels per day (bpd) drop in its exports by year-end.

Trump meets with Saudi crown prince

Trump meets with Saudi crown prince  

Analysts also pointed to healthy economic growth and a weak dollar as oil price drivers.

In a sign of healthy demand, U.S. crude stocks fell by 2.7 million barrels in the week ended March 16 to 425.3 million, as refineries boosted output, the American Petroleum Institute said on Tuesday.

“The global economy is humming, and robust demand solidly underpins commodity prices. The soft dollar and a bullish market mood have been equally supportive elements,” said Norbert Ruecker, head of macro and commodity Research at Swiss bank Julius Baer.

A weaker greenback makes imports of dollar-denominated crude cheaper for countries using other currencies at home, potentially spurring demand.

Despite this, he said seasonally low demand at the end of the northern hemisphere winter season meant he had “a rather cautious near-term outlook on commodities.”

Looming over oil markets has been surging U.S. crude oil production, which has risen by more than a fifth since mid-2016, to 10.38 million barrels per day (bpd), pushing it past top exporter Saudi Arabia and within reach of Russia’s 11 million bpd.

Analysts say U.S. producers are not yet at their limits.

Some say U.S. producers are holding back expansion in order to prevent another price crash, as seen between 2014 and 2016.

“The larger players are holding back capital expenditures in an attempt to avoid past mistakes… Despite a substantial growth in the U.S. production, there is no effort to produce to the max with no regard to the market,” said energy consultancy FGE in a note.