Oil prices finish lower, but mark 2nd straight weekly climb

MarketWatch

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MYRAP. SAEFONG

MARKETS/COMMODITIES REPORTER

CHRISTOPHERALESSI

Oil prices on Friday pulled back from 3 ½-year highs, but marked a second weekly climb in a row, driven by uncertainty over how much oil the global market will lose following the U.S. decision to reimpose sanctions on OPEC member Iran.

On the New York Mercantile Exchange, June West Texas Intermediate crude oilCLM8, -1.19% fell 66 cents, or 0.9%, to settle at $70.70 a barrel, after closing at $71.36 Thursday—the highest since November 2014. The contract logged a roughly 1.4% weekly climb.

Read: Oil prices have surged above $70—here are 4 key reasons behind the rally

July Brent crude LCON8, -0.37% the global benchmark, lost 35 cents, or nearly 0.5%, to $77.12 a barrel on ICE Futures Europe, after notching modest gains Thursday. For the week, the contract climbed about 3%. The recent surge in futures this week has prompted renewed oil-market hopes from bulls that Brent crude could again reach $100 a barrel—— a level not seen since before the price crash of late 2014.

Bank of America Merrill Lynch on Thursday predicted a Brent price target of $90 a barrel by the second quarter of 2019, while noting a “risk of $100 a barrel” oil next year. “Although, we are concerned these market dynamics could unfold over a shorter time frame,” the analysts wrote in a note.

Read: U.S. gasoline prices could top $3 this summer thanks to Iran and Venezuela

Trump’s move Tuesday to abandon the 2015 international agreement to curb Iran’s nuclear program paved the way for the reimposition of U.S. economic sanctions on the Islamic Republic. The expectation that sanctions will again frustrate Iran’s oil industry and limit global supply has helped to provide support to oil.

In the past, sanctions against Iran have cut the country’s crude exports by around 1 million barrels a day. But because the European Union and other intentional players have decided to stick with the deal, U.S. sanctions are likely to affect only up to around 350,000 barrels a day, once reinstated within six months’ time, according to analysts at MUFG Bank.

Read: U.S. levies sanctions on Iran currency exchange that funds Quds military unit

Meanwhile, analysts at Commerzbank said Friday current crude-price levels indicated the Organization of the Petroleum Exporting Countries was now “regaining the price power it had lost” in the wake of the first U.S. shale boom that led to the price drop over three years ago.

“A large part of the price slide, which saw [Brent] plunge from over $100 to below $30 a barrel as a result of the price war between OPEC and the U.S. shale oil industry that began in autumn 2014, has now been reversed,” the analysts wrote in a note.

OPEC’s efforts to rein in a supply glut through production curbs helped boost prices by more than 50% last year. The cartel—led by Saudi Arabia—and 10 outside producers, including Russia, have been holding back crude output by around 1.8 million barrels a day since the start of 2017. The agreement is set to expire at the end of this year.

However, Saudi Arabia—the de facto head of OPEC—signaled this week that it could up its own production to make up for lost barrels from Iran.

Read: How Saudi Arabia can plus the hole left by Iranian crude without wrecking the OPEC deal

“OPEC members and Russia may put more oil on the market to counter the loss” of Iranian oil, said James Williams, energy economist at WTRG Economics. There is also the increased “probability that OPEC will raise quotas at the June meeting.”

Oil market participants Friday also saw further signs of ongoing growth in U.S. crude production. Baker Hughes BHGE, -1.16%  reported that the number of active U.S. rigs drilling for oil rose for a sixth week in a row, by 10 to 844 this week.

With oil prices at these levels, it “makes more sense for the U.S. to ramp up production,” said Scott Gecas, senior strategic account executive at Long Leaf Trading Group.

Among refined products, June gasoline RBM8, -0.36% settled nearly flat at $2.189 a gallon, but saw a weekly climb of 3.5%. June heating oil HOM8, -0.04% also ended little changed at $2.222 a gallon, for a rise of 3.2% on the week.

June natural gas NGM18, +0.18%  fell nearly 0.3% to $2.806 per million British thermal units, still settling about 3.5% higher for the week.

— Barbara Kollmeyer contributed to this article

Oil drops after US President Trump threatens new China trade tariffs

CNBC

  • Oil prices fell along with equities as U.S. President Trump’s threat of new tariffs on China reignited fears of a trade war between the world’s two biggest economies.
  • While oil market watchers were wary of the brewing trade war, they did not expect to see steep falls amid signs of tightening supplies.

Oil jack pumps in the Kern River oil field in Bakersfield, California.

Jonathan Alcorn | Reuters
Oil jack pumps in the Kern River oil field in Bakersfield, California.

Oil prices fell on Friday after U.S. President Donald Trump’s threat of new tariffs on China reignited fears of a trade war between the world’s two biggest economies.

President Trump said on Thursday he had ordered U.S. trade officials to consider tariffs on $100 billion more of imports from China, escalating tensions with Beijing.

Brent crude for June delivery was down 32 cents, or 0.5 percent, at $68.01 per barrel at 0410 GMT.

U.S. West Texas Intermediate crude for May delivery was down 35 cents, or 0.6 percent, at 63.19 a barrel.

Shanghai September crude futures were untraded due to public holidays in China, after falling 0.8 percent on Wednesday. Shanghai trading will resume on Monday.

While oil market watchers were wary of the brewing trade war between the United States and China, they did not expect to see steep falls amid signs of tightening supplies.

“As the escalating trade tensions continue to weigh on the commodity sector, we view the oil market as the best sector in which to wait out the volatility,” analysts at ANZ bank said in a note. “Supply-side issues amid a backdrop of falling inventories should override any concern over weaker economic growth.”

The Energy Information Administration reported a 4.6 million-barrel draw in U.S. crude inventories last week, compared with analysts’ expectations for an increase of 246,000 barrels.

“U.S. oil inventories remain a volatile gauge, but they still provide a good litmus test for the short-term,” said Stephen Innes, head of trading for the Asia-Pacific region at futures brokerage OANDA in Singapore.

Meanwhile, Saudi Arabia said on Thursday it would raise its official selling price for May crude for Asian customers.

The Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia are committed to cutting output by around 1.8 million barrels per day through the end of 2018 in a bid to clear a global overhang and support prices.

Saudi Arabia, the de facto leader of the oil cartel, has said production cuts could be extended in one form or another.

OPEC and its allies should keep the cuts to ensure healthy price levels as a way to boost investment in the industry and avoid a supply and price shock in the long run, Qatar’s Energy Minister Mohammed al-Sada told Reuters.

US oil prices rise to two-year high on Keystone pipeline outage

CNBC

  • U.S. crude oil hit fresh two-year highs on Friday
  • The closure of the 590,000 barrels per day (bpd) Keystone pipeline following a spill last week has helped drive up U.S. crude
  • Markets have also been tightening due to an OPEC-led effort to withhold 1.8 million bpd of production
  • OPEC will meet on Nov. 30 to discuss its policy

An oil pump jack in the oil town of Gonzales, Texas.

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An oil pump jack in the oil town of Gonzales, Texas.

U.S. crude oil rose to a two-year high on Friday, as the shutdown of a major crude pipeline from Canada to the United States tightened North American markets.

Trading activity is expected to be very low on Friday due to the U.S. Thanksgiving holiday.

U.S. West Texas Intermediate (WTI) crude futures were at $58.44 a barrel at 0550 GMT, up 42 cents, or 0.7 percent from their last settlement. Price rose to as much as $58.58 a barrel early on Friday, the highest since July 1, 2015.

Brent crude futures were at $63.42, down 13 cents.

In a sign of a tightening market, both crude benchmarks are in backwardation, where spot prices are higher than those for future delivery, which makes it unattractive for traders to store oil for later sale.

The closure of the 590,000-barrel-per-day (bpd) Keystone pipeline following a spill last week has driven up U.S. crude as stockpiles at the storage hub of Cushing, Oklahoma, have declined, traders said.

Markets have also been tightening globally due to an effort by the Organization of the Petroleum Exporting Countries (OPEC) and a group of other producers, including Russia, to withhold 1.8 million bpd of production.

The deal to restrict output expires in March 2018, but OPEC will meet on Nov. 30 to discuss its policy, and it is expected to extend the cuts.

“The agenda for the OPEC meeting is out and it’s only a 3-hour meeting. That suggests that a broad consensus has been built and the meeting is really just a rubber stamp to agree the extension of the Saudis’ favored 9-month extension period,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader, in a note on Friday.

Despite this expectation, McKenna said there was a slight risk of the collaboration derailing.
“Imagine though if all the tensions in the Middle East, between the Saudis and Iranians and between other Gulf states and Qatar, somehow derail the meeting. It’s a low probability, high-impact possibility,” he said.

RBC’s Helima Croft on her oil outlook

RBC’s Helima Croft on her oil outlook  

Overall, however, analysts said market fundamentals were balanced, supporting prices.

“Oil market fundamentals are improving with… robust global demand growth of around 1.7 percent this year,” U.S. investment bank Jefferies said.

“Growth in U.S. output of 900,000 bpd this year (and in 2018) should not overwhelm the market,” it added.

U.S. oil production has jumped by 15 percent since mid-2016 to a record 9.66 million bpd, thanks largely to shale drilling.

The increased production is likely to translate into higher exports, especially to Asia.

China’s Unipec, the trading arm of Asia’s largest oil refiner Sinopec, said on Friday that it would double the volume of crude oil it imports from the U.S. to around 12 million tonnes next year.

But Richard Robinson, manager of the Ashburton Global Energy Fund, warned U.S. output growth could slow as operators struggle to get enough sand and water, both of which are needed in the shale production process, known as fracking.

“Logistics are a big bottleneck,” he said.