Oil markets mixed as US crude, Brent move in opposite directions

CNBC

  • Oil markets were split on Tuesday, with U.S. crude pushed up by reduced flows from Canada.
  • Traders said the higher WTI prices were a result of reduced flows from Canada’s Keystone pipeline.
  • Brent crude prices eased on Tuesday.

Getty Images

Oil markets were split on Tuesday, with U.S. crude pushed up by reduced flows from Canada while international Brent prices eased.

U.S. West Texas Intermediate (WTI) crude futures were at $62.38 a barrel at 0518 GMT, up 70 cents, or 1.1 percent, from their last settlement.

Traders said the higher WTI prices were a result of reduced flows from Canada’s Keystone pipeline, which has been operating below capacity since late last year due to a leak, cutting Canadian supplies into the United States.

Outside North America, Brent crude eased on the back of a dip in Asian stocks and a stronger dollar, which potentially curbs demand as it makes fuel more expensive for countries using other currencies domestically.

Brent crude futures were at $65.48 per barrel, down 19 cents, or 0.3 percent, from their last close.

The opposing price direction of the two main crude benchmarks has sharply reduced WTI’s discount to Brent, to around $3.22 per barrel on Tuesday, down from over $7 in late 2017.

Overall, oil markets remain well supported due to supply restraint by the Organization of the Petroleum Exporting Countries (OPEC), which started last year in order to draw down excess global inventories.

OPEC Secretary-General Mohammad Barkindo said on Monday the organisation registered 133 percent compliance with agreed output reduction targets in January.

Barkindo said compliance last year stood at 107 percent.

Global oil demand for 2018 is estimated to grow 1.6 million barrels per day due to an “encouraging environment”, Barkindo added.

Geopolitical risk has heightened as a factor in crude oil prices

Geopolitical risk has heightened as a factor in crude oil prices  

“OPEC and Russia continue to support the production cuts that are due to expire at the end of this year, and they assure markets that there will be an orderly ramp up of production once the cuts expire,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

While most of OPEC, especially its de-facto leader Saudi Arabia, is showing strong support for the production restraint, non-OPEC producer Russia has shown signs it may at some stage gradually start to increase output again.

Saudi Arabia – not least in an attempt to give the planned listing of its state-owned oil giant Saudi Aramco – a boost, is keen for Russia and other producers to keep withholding supplies to prop up prices.

But soaring U.S. production is threatening to erode OPEC’s efforts.

Last week, the amount of U.S. oil rigs drilling for new production rose for a fourth straight week to 798, in an indication that U.S. crude output, already at a record 10.27 million bpd, may rise further.

The United States late last year became the world’s second biggest oil producers, only slightly behind Russia and ahead of top exporter Saudi Arabia.

Oil prices dip as US output rises, but still on pace for monthly gains

CNBC

  • Oil markets remain supported by OPEC-led production cuts.
  • A weakening dollar has also supported crude futures.
  • However, U.S. production is expected to hit 10 million barrels per day soon, and Canadian output is also rising.

Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

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

Brent crude oil prices eased below $70 a barrel on Monday as rising U.S. output undermined efforts led by OPEC and Russia to tighten supplies, but prices were still on track for a monthly gain.

Brent crude futures were down 92 cents, or 1.3 percent, at $69.60 a barrel by 10:58 a.m. ET (1558 GMT), while U.S. West Texas Intermediate (WTI) crude futures fell 79 cents, or 1.2 percent, to $65.35 a barrel.

So far this month, the Brent crude price has risen by 5.5 percent through last Friday’s close.

One of the key drivers has been the dollar, which has lost about 3 percent against a basket of major currencies so far this year.

Prince Alwaleed’s release is a relief for oil  

The decline was exacerbated last week when U.S. Treasury Secretary Steven Mnuchin suggested President Donald Trump‘s administration favored a weaker currency.

A falling dollar tends to support oil, which is priced in the U.S. currency, by making it cheaper for holders of other currencies.

Support has also come from a large premium in the front-month Brent oil contract over those for future delivery, as investment in crude futures and options reached a new record high last week.

“The market is bullish. One side that could correct significantly could come from the strength in the U.S. dollar,” PVM Oil Associates strategist Tamas Varga said.

“Undoubtedly, whatever the strategy is of Donald Trump and his finance ministry, they managed to support oil prices in the last week by talking the dollar down, so if we see a big (upward) correction in the dollar then we’ll probably see a (downward) correction in oil.”

In the last couple of months, oil has tended to move inversely to the dollar, as weakness in the currency makes it cheaper for non-U.S. investors in crude to buy and vice versa.

Despite generally bullish sentiment, analysts said the market had been dented by rising output in North America.

The ‘wobbly leg’ in oil markets  

U.S. crude production has grown by over 17 percent since mid-2016 to 9.88 million barrels per day (bpd) in mid-January. It is expected to break through 10 million bpd soon.

U.S. energy companies added 12 oil rigs drilling for new production last week, taking the total to 759, energy services firm Baker Hughes said on Friday.

U.S. production is already on par with top exporter and OPEC kingpin Saudi Arabia. Only Russia produces more, averaging 10.98 million bpd in 2017.

There are also signs that Canadian oil production, already at 335,000 bpd, could start to rise as investment in its shale sector picks up. Canada’s overall crude production currently stands at 4.2 million bpd.

U.S. bank JP Morgan said it had increased its 2018 average price forecast by $10 per barrel to $70 per barrel for Brent and by $10.70 per barrel for WTI to $65.63.

“We expect Brent to touch close to $78 per barrel towards end of Q1 2018 or early Q2 2018,” it added.

— CNBC’s Tom DiChristopher contributed to this report.

Oil near 3-year highs on output cuts despite rising North American rig count

CNBC

  • Oil prices held just below December 2014 highs on Monday
  • Oil markets have been well supported by production cuts led by OPEC and Russia which are aimed at propping up crude prices

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 held just below December 2014 highs on Monday, supported by ongoing output cuts led by OPEC and Russia despite a rise in U.S. and Canadian drilling activity that points to higher future output in North America.

Brent crude futures, the international benchmark for oil prices, were at $69.85 per barrel at 0412 GMT, down 2 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $64.40 a barrel, down 10 cents.

Both benchmarks last week reached levels not seen since December 2014, with Brent touching $70.05 a barrel and WTI as high as $64.77.

ANZ bank said on Monday oil prices had recently risen “on the back of data continuing to show the market is tightening.”

Oil markets have been well supported by production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia which are aimed at propping up crude prices.

The cuts started in January last year and are set to last through 2018, and they have coincided with healthy demand growth, pushing up crude prices by more than 13 percent since early December.

But other factors, including political risk, have also supported crude.

“Tighter fundamentals are (the) main driver to the rally in prices, but geopolitical risk and currency moves along with speculative money in tandem have exacerbated the move,” U.S. bank JPMorgan said in a note.

Attracted by tighter supplies and strong consumption, financial investors have raised their net long U.S. crude futures positions, which would profit from higher prices, to a new record, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

US oil drillers add rigs for first time in five weeks

US oil drillers add rigs for first time in five weeks  

Despite the sharp price rises since December, some analysts have been warning of a downward correction.

“Many believe that oil prices above $60 will self-correct as this level of prices will encourage substantially more drilling in U.S. shale which will lead to increased supply,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

U.S. energy companies added 10 oil rigs in the week to Jan. 12, taking the number to 752, energy servicing firm Baker Hughes said on Friday.

That was the biggest increase since June 2017, and ANZ bank said the jumpcame “as shale producers quickly reacted to the strong rise in prices in 2018.”

The picture was similar in Canada, where energy firms almost doubled the number of rigs drilling for oil last week to 185, the highest level in 10 months.

The high prices for crude, which is the most important feedstock in the petroleum industry, have also crimped profit margins for oil refiners, resulting in a decline in new crude orders.

Oil dips away from 3-year highs on signs of overheated market

CNBC

  • Oil inched away from three-year highs on signs a 13-percent rally since early December may have run its course
  • Oil markets have so far been generally supported by a production cut led by OPEC and Russia
  • Despite this, more bearish signals are appearing

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

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

Oil inched away from three-year highs on Thursday on signs that a 13-percent rally since early December may have run its course, although a surprise drop in U.S. production and lower crude inventories offered prices some support.

U.S. West Texas Intermediate (WTI) crude futures were at $63.50 a barrel at 0529 GMT, 7 cents below their last settlement, but still close to a December-2014 high of $63.67 per barrel reached the previous day.

Brent crude futures were at $69.10 a barrel, 10 cents below their last finish, albeit also still close to the previous day’s peak of $69.37 a barrel – the highest level since an intra-day spike in May 2015.

“In Q1, the balance of risk to Brent lies to the downside, with prices overheating, record net-length built into the futures market and fundamentals set to weaken seasonally,” BMI Research said in a note.

The mounting downward pressure on prices is also showing in the physical oil market, where OPEC’s No.2 and No.3 producers, Iran and Iraq, this week cut their supply prices to remain competitive with customers.

Oil markets have so far been generally supported by a production cut led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia that started in January last year and is set to last through 2018.

Oil pumps are seen in Lake Maracaibo, in Lagunillas, Ciudad Ojeda, in the state of Zulia, Venezuela.

Iran and Venezuela present biggest risk to oil in 2018: ClearView Energy Partners  

More immediate price support came overnight from the United States, where crude inventories fell almost 5 million barrels in the week to Jan. 5, to 419.5 million barrels.

That’s slightly below the five-year average of just over 420 million barrels.

U.S. production fell 290,000 barrels per day to 9.5 million bpd, the EIA said, foiling expectations of U.S. output breaking through 10 million bpd.

Ample fuel

Despite this, more bearish signals are appearing. Fuel inventories in Asia and the United States remain ample, and in some cases are rising.

U.S. gasoline stocks rose 4.1 million barrels, EIA data showed, more than expected.

In Asia’s oil trading hub Singapore, average refinery profit margins have fallen below $6 per barrel this month, their lowest seasonal level in five years, resulting in lower feedstock crude orders.

With the crude price up by more than 13 percent since early December, some analysts expect a downward price correction following the recent bull-run.

“Markets are getting a bit fatigued, and a healthy correction could be on the cards,” said Stephen Innes, head of trading for Asia/Pacific at futures brokerage Oanda in Singapore.

Oil trades roughly flat in thin volume ahead of Christmas holiday weekend

CNBC

  • OPEC-led production cuts are still supporting the market.
  • Traders started closing positions ahead of the Christmas and New Year holidays.
  • Climbing U.S. output will weigh on oil markets in 2018 and 2019, Rystad said.

Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

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

Oil prices traded roughly flat in light volumes on Friday, staying near their highest levels since 2015 on pledges from OPEC leader Saudi Arabia and non-OPEC Russia that any exit from crude output cuts would be gradual.

U.S. West Texas Intermediate (WTI) crude futures ended Friday’s session 11 cents higher at $58.47.

Brent crude futures, the international benchmark for oil prices, ended the session up 35 cents at $65.25 a barrel, its highest close since June 2015.

Both contracts settled one hour early due to the upcoming Christmas holiday. Market liquidity was also drying up on Friday as traders closed positions ahead of the Christmas and New Year breaks.

About 280,000 front-month U.S. crude futures changed hands while front-month Brent crude futures saw the lowest trade volumes in about seven months, excluding expiration days.

Saudi Arabia has to be ‘absolutely delighted’ with the oil market  

An earlier dip on Friday was due to an outlook for rising supplies that triggered those holding long positions to sell-out ahead of the year-end holidays, traders said.

Also weighing on the market was the expected return of the 450,000 barrels per day (bpd) Forties pipeline system in the North Sea in January.

The pipeline, which delivers crude underpinning Brent futures, was shut earlier this month due to a crack. Operator Ineos said on Thursday it expected to complete repairs around Christmas and to gradually restart the system in early January.

Oil prices have recovered in the past year on the back of oil production cuts by OPEC, Russia and other producers, helping reduce the global inventory overhang.

Russian Energy Minister Alexander Novak told Reuters OPEC and Russia would exit cuts smoothly, possibly extending curbs in some form to avoid creating any new surplus.

“There is a consensus among the (oil) ministers that we should avoid oversupply on the market when exiting the deal,” Novak said, comments that will calm investor worries that Moscow wants a speedy exit.

Saudi Energy Minister Khalid al-Falih said it was premature to discuss changes to the pact on supply cuts as market rebalancing was unlikely to happen until the second half of 2018.

Commodities tomorrow:

Commodities tomorrow: Crude oil trades higher  

The OPEC-led pact to withhold supplies started in January this year. The producer group and its allies agreed to extend the cuts cover all of 2018 from their March expiry. The supply restraint has reduced oil inventories and helped push up Brent by more than 45 percent since June this year.

“OPEC’s extension of its production cuts through the end of 2018 is a necessary condition for continued inventory drawdown,” U.S. investment bank Jefferies said.

Jefferies said it has raised its 2018 Brent forecast to $63 a barrel from $57, and its WTI forecast to $59 per barrel from $54, on expectations that the market will remain tight.

Novak said some pressure on prices was possible in the first quarter of 2018 when demand traditionally declines and added he saw prices hovering at around $50 to $60 in 2018.

Analysts said crude output in the United States, fast approaching 10 million bpd, would be a drag on prices in the longer term.

“Supply is expected to grow further, paving the way to an oversupplied market, which can again exercise downward pressure on oil prices,” consultancy Rystad Energy said.