Oil rises as Saudi Arabia signals OPEC cuts to continue under new energy minister

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KEY POINTS
  • Global benchmark Brent was up 53 cents, or 0.9%, at $62.07 a barrel by 0425 GMT.
  • U.S. West Texas Intermediate was 57 cents, or 1%, higher at $57.09 a barrel.
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Oil rose on Monday on expectations that Saudi Arabia, the world’s largest oil exporter, will continue to support output cuts by OPEC and other producers to prop up prices under new Energy Minister Prince Abdulaziz bin Salman.

Prices climbed for a fourth day and were also supported by comments from the United Arab Emirates’ energy minister that OPEC and its allies are committed to balancing the crude market.

Global benchmark Brent was up 53 cents, or 0.9%, at $62.07 a barrel by 0425 GMT, while U.S. West Texas Intermediate was 57 cents, or 1%, higher at $57.09 a barrel.

Salman, a long-time member of the Saudi delegation to the Organization of the Petroleum Exporting Countries (OPEC), was named to the position on Sunday, replacing Khalid al-Falih. He is the son of Saudi King Salman and this is the first time the energy portfolio has been handed to a member of the royal family.

He helped to negotiate the current agreement between OPEC and non-OPEC countries including Russia, a group known as OPEC+, to cut global crude supply to support prices and balance the market.

A Saudi official said on Sunday that there would be no shift in Saudi and OPEC policy on the cuts and that Prince Abdulaziz would work to strengthen OPEC and non-OPEC cooperation.

“The change at the top doesn’t necessarily mean a shift in policy as much as it’s being viewed as a move to improve relations within OPEC and with non-OPEC producers in the wake of the latest Russian compliance fissures,” said Stephen Innes, Asia Pacific market strategist at Axi Trader.

Russia’s oil output in August exceeded its quota under the OPEC+ agreements.

UAE’s Minister of Energy and Industry Suhail al-Mazrouei said on Sunday that members of OPEC and non-OPEC producers are “committed” to achieving oil market balance.

Asked about possible deeper production cuts, the minister told a news conference in Abu Dhabi that he was not concerned about current oil prices, rather the level of oil inventories.

Trade and geopolitical tensions are affecting the market more than demand and supply, Mazrouei said, but he was quick to rule out hasty steps influenced by the trade war between the United States and China.

“The fear of slower (oil) demand is only going to happen if that tension is escalating and I am personally hopeful that is not the case,” Mazrouei told Reuters on Sunday.

Prices on Monday were also supported by a rise in oil imports in China in August, with shipments to the world’s biggest importer up 3% from July and nearly 10% higher in the first eight months of 2019 from a year earlier.

“With (refinery) maintenance season wrapping up, oil imports stayed buoyant. Attractive profit margins continues to favour higher imports; despite the industry burdened by higher products inventories,” ANZ Research said in a note.

In the U.S., drilling companies cut the number of operating oil rigs for a third week in a row last week.

Oil prices fall after jump the day before; glut, economy worries weigh

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  • Both Brent and U.S. crude futures slipped as of 0611 GMT after soaring at least 7.9 percent each during the previous session.
  • Both crude benchmarks are down at least 37 percent from highs touched in October.

A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

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A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Oil fell on Thursday after soaring at least 7.9 percent in the previous session, as worries over a glut in crude supply and concerns over a faltering global economy pressured prices even as a stock market surge offered support.

Brent crude oil futures were down 16 cents, or 0.29 percent, at $54.31 per barrel by 0611 GMT. They rose 7.9 percent to $54.47 a barrel the day before.

U.S. West Texas Intermediate (WTI) crude futures fell 0.37 percent to $46.05 per barrel. They jumped 8.7 percent to $46.22 per barrel in the previous session.

Both crude benchmarks are down at least 37 percent from highs touched in October.

Global stocks rebounded on Wednesday on the back of the Trump administration’s attempt to shore up investor confidence and a report on strong U.S. holiday spending.

Shim Hye-jin, a commodity analyst at Samsung Securities in Seoul, said oil prices were still low despite gains made the day before.

“But if OPEC’s cuts are fulfilled, WTI prices are expected to rise to $50-60 a barrel, while Brent is expected to go up to between $58-70 a barrel next year.”

The Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia, agreed at a meeting earlier this month to limit output by 1.2 million barrels per day starting in January.

Meanwhile, potentially bolstering oil prices, a preliminary Reuters poll on Wednesday forecast that U.S. crude inventories would drop 2.7 million barrels in the week to Dec. 21, marking their fourth straight week fall.

The American Petroleum Institute’s (API) inventory data is due on Thursday, while the government’s Energy Information Administration (EIA) is set to release its report on Friday.

— CNBC contributed to this report.

Crude oil futures soften as bearish factors come in to play; ICE Brent down to $74.37/b, NYMEX WTI $69.40/b

S&P GLOBAL

London — Crude oil futures were showing signs of shedding their recent gains in European morning trading Friday as a sense of unease in the market and trading activity showing signs of fatigue battled to outweigh the recent bullish geopolitical news and US stock draw.

At 1000 GMT, the September ICE Brent crude futures contract was down 17 cents from the Thursday’s settle at $74.37/b, while the NYMEX WTI September contract was down 21 cents at $69.40/b.

“The softening of the near-term structure points to an underlying sense of unease,” PVM analysts said in a report Friday morning.

Adding to the bearish weight are the signs of fatigue developing in the market.

ICE Brent volumes have declined by a significant 29% between Monday and Thursday of this week, which “bares all the hallmarks of rally fatigue and will do little to underpin meek levels of upside potential,” PVM analysts said.

There is however still plenty of bullish news in the market and “in the absence of any major political or economic turmoil, Brent is likely to remain at above $70/b in the coming weeks,” Commerzbank analysts said in a morning note Friday.

Saudi Arabia, the world’s largest crude exporter, suspended all its oil shipments through the Bab el-Mandeb strait at the southern tip of the Red Sea, following an attack on two VLCCs by Yemeni Houthi militia.

Many market participants were largely unfazed by this event saying that oil trade will not be significantly disrupted by the halting of Saudi Aramco’s shipments through the strait unless the security situation deteriorates.

“The news of Saudi shipments via the Red Sea being suspended had amazingly little impact on the oil price,” Commerzbank analysts said.

Energy Information Administration data released late Wednesday — showing US crude inventories fell 6.15 million barrels to 404.94 million barrels in the week ended July 20 — and rising geopolitical tensions between the US and Iran also appear to have been digested by the market and are no longer providing much in the way of support to the oil complex.

In response to the rising tensions, PVM analysts said “once upon a time, such threats would have propelled oil prices higher…[but now] they offer little in the way of price support with market players having become accustomed to such theatrics.”

Looking towards the US, logistical issues remain, with pipeline capacity insufficient to keep up with rising production in the Permian basin.

“There is unlikely to be much relief until the second half of 2019, when new pipeline capacity is scheduled to start up,” ING analysts said in a note.

Market players will be looking towards the weather moving into next week — especially for any signs of potential hurricanes — as adverse weather conditions can have a significant impact on the oil market, potentially causing severe supply disruptions.

Oil stable but below recent highs as rising U.S. supplies threaten bull-run

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  • Oil prices stabilized on Wednesday with global benchmark Brent at $74.02 a barrel and U.S. crude at $67.84.
  • Many analysts say that the oil market slump that started in 2014 has ended and that a sustained price rally is likely due to supply disruptions and strong demand — especially from Asia.
  • A report from the American Petroleum Institute on Tuesday said U.S. crude inventories rose by 1.1 million barrels in the week to April 20.

Oil prices were stable on Wednesday, but were below more than three-year highs reached the previous session as rising U.S. fuel inventories and production dragged on an otherwise bullish market.

Brent crude oil futures were at 74.02 per barrel at 0020 GMT, up 16 cents, or 0.2 percent, from their last close, but were some way below the November-2014 high of $75.47 a barrel reached the previous day.

U.S. West Texas Intermediate (WTI) crude futures were up 14 cents, or 0.2 percent, at $67.84 per barrel. That was also off the late-2014 highs of $69.56 a barrel reached earlier in April.

Overall, many analysts say an oil market slump that started in 2014 has now ended and is turning into a sustained price rally due to supply disruptions and also strong demand, especially in Asia.

That’s due to production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) which were introduced in 2017 with the aim of propping up the market, but also because of political risk to supplies in the Middle East, Venezuela and Africa.

“Market sentiment is turning increasingly bullish towards the commodity,” said Lukman Otunuga, research analyst at futures brokerage FXTM.

Despite this, Otunga said “the sustainability of the rally is a concern” as it was fuelled largely by political risk in the Middle East.

“With rising production from U.S shale still a key market theme that continues to weigh on oil prices, it will be interesting to see how much oil appreciates before bears enter the scene,” he said.

U.S. crude oil production 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. Only Russia currently produces more, at almost 11 million bpd.

U.S. crude inventories rose by 1.1 million barrels in the week to April 20 to 429.1 million, according to a report by the American Petroleum Institute on Tuesday.

Official weekly U.S. fuel inventory and crude production data will be published later on Wednesday by the Energy Information Administration (EIA).

Can $80 Oil Be Justified?

OIL PRICE

Oil Rig

Oil prices could reach $80 a barrel in April, although such a price would not be justified by market fundamentals, Russia’s Energy Minister Alexander Novak said on Friday.

Asked whether $80 oil is a fair price for oil, Novak told reporters at the end of an OPEC/non-OPEC ministerial meeting in Saudi Arabia that he couldn’t rule out anything, and geopolitical factors could push prices up. But $80 oil, according to Novak, is not the price that fundamentals are currently supporting, Russian news agency RIA Novosti quoted the minister as saying.

Novak declined to pinpoint a specific price of oil that would be justified by fundamentals, saying that oil prices are volatile right now. When oil prices are more stable, then we would be able to say what the fair price of oil is, the minister said.

Oil prices fell on Friday morning after U.S. President Donald Trump criticized OPEC in a tweet, saying that “Oil prices are artificially Very High! No good and will not be accepted!”

Asked by reporters if he thinks that the price of oil is artificially high, Novak said “No”.

Reports over the past week have emerged that OPEC’s biggest exporter and de facto leader Saudi Arabia could be aiming for oil prices at $80 and even $100 a barrel to balance its budget and boost the valuation of its oil giant Aramco.

Related: How High Can Trump Push Oil Prices?

Some analysts do expect oil to reach $80 in the coming months.

Francisco Blanch, head of global commodities research at Bank of America Merrill Lynch, told Bloomberg Daybreak: Americas that he sees oil hitting that level in this quarter, due to some bottlenecks emerging in the Permian that could slow down the growth pace.

Goldman Sachs, for its part, sees oil prices at $80 by the fourth quarter of this year due to expectations that global oil demand growth will stay high this year, and that China’s demand growth may be even higher than currently estimated.

By Tsvetana Paraskova for Oilprice.com