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

CNBC

  • 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

Oil markets tense after western strikes on Syria, rising US drilling weighs

CNBC

  • Oil fell 1 percent on Monday as markets opened following western air strikes in Syria over the weekend.
  • Oil markets also came under pressure from a rise in U.S. oil drilling activity.

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 fell 1 percent on Monday as markets opened following western air strikes in Syria over the weekend, while a rise in U.S. drilling for new production also dragged on prices.

The United States, France and Britain launched 105 missiles on Saturday, targeting what they said were three chemical weapons facilities in Syria in retaliation for a suspected poison gas attack in Douma on April 7.

Brent crude oil futures were at $71.85 per barrel at 0547 GMT, down 73 cents, or 1 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 57 cents, or 0.9 percent, at $66.82 a barrel.

Traders said markets in Asia began cautiously after the weekend strikes, with some relief that the move looked unlikely to escalate.

“In the wake of the coordinated attack on Syria, oil prices are significantly lower … (but) the impact appears to be compact and over,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Oil markets also came under pressure from a rise in U.S. oil drilling activity.

U.S. energy companies added seven oil rigs drilling for new production in the week to April 13, bringing the total to 815, the highest since March 2015, energy services firm Baker Hughes said on Friday.

Despite this, Brent is still up more than 16 percent from its 2018 low in February, due to healthy demand and also because of conflict and tension in the Middle East.

Although Syria itself is not a significant oil producer, the wider Middle East is the world’s most important crude exporter and tension in the region tends to put oil markets on edge.

“Investors continued to worry about the impact of a wider conflict in the Middle East,” ANZ bank said.

Oil gains on US crude drawdown, easing of tension in US-China spat

CNBC

  • Oil prices rose on Thursday, buoyed by the U.S.government data showing a surprise drawdown in crude stockpiles.
  • Oil also got support from firm global equities, as the U.S. expressed willingness to negotiate a resolution on trade.

An oil pump jack in Gonzales, Texas.

Getty Images
An oil pump jack in Gonzales, Texas.

Oil prices rose on Thursday, buoyed by the U.S.government data showing a surprise drawdown in crude stockpiles and an easing of tensions over a trade row between the United States and China.

U.S. West Texas Intermediate crude for May delivery was up 27 cents, or 0.4 percent, at $63.64 a barrel by 0445 GMT after settling down 14 cents.

Front-month London Brent crude for June delivery was up 30 cents, or 0.4 percent, at $68.32, having ended down 10 cents.

Oil also got support from firm global equities, as the United States expressed willingness to negotiate a resolution on trade after proposed U.S. tariffs on $50 billion in Chinese goods prompted a quick response from Beijing that it would retaliate by targeting key American imports.

Oil prices have recently closely tracked equities.

“The two countries are using discretion in their actions, and it does not look like the situation is developing into a full-scale trade war yet,” said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo. “There is also hope for dialogue.”

Before the rebound late on Wednesday, after the release of the Energy Information Administration inventory data, WTI and Brent had hit two-week lows after China proposed a broad range of tariffs on U.S. exports, feeding fears of a trade war.

U.S. crude inventories fell by 4.6 million barrels last week, compared with analysts’ expectations for an increase of 246,000 barrels, EIA data showed on Wednesday.

Oil has also received support after a Reuters survey showed on Wednesday that OPEC oil output fell in March to an 11-month low due to declining Angolan exports, Libyan outages and a further slide in Venezuelan output.

Shanghai crude futures trading was closed on Thursday due to a public holiday in China. Trading will resume on Monday.

China is reportedly taking the first steps to pay for oil in yuan: Sources

CNBC

  • Annual trade in oil worth an estimated $14 trillion
  • Pilot could be launched as early as the second half of 2018
  • Beijing could start with crude purchases from Russia, Angola

Employees close a valve of a pipe at a PetroChina refinery in Lanzhou, Gansu province.

Stringer | Reuters
Employees close a valve of a pipe at a PetroChina refinery in Lanzhou, Gansu province.

China is taking its first steps towards paying for imported crude oil in yuan instead of the U.S. dollar, three people with knowledge of the matter told Reuters, a key development in Beijing’s efforts to establish its currency internationally.

Shifting just part of global oil trade into the yuan is potentially huge. Oil is the world’s most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China’s gross domestic product last year.

A pilot program for yuan payment could be launched as early as the second half of this year, two of the people said.

Regulators have informally asked a handful of financial institutions to prepare for pricing China’s crude imports in the yuan, said the three sources at some of the financial firms.

“Being the biggest buyer of oil, it’s only natural for China to push for the usage of yuan for payment settlement. This will also improve the yuan liquidity in the global market,” said one of the people briefed on the matter by Chinese authorities.

China is the world’s second-largest oil consumer and in 2017 overtook the United States as the biggest importer of crude oil. Its demand is a key determinant of global oil prices.

Under the plan being discussed, Beijing could possibly start with purchases from Russia and Angola, one of the people said, although the source had no details of anything in the works.

Both Russia and Angola, like China, are keen to break the dollar’s global dominance. They are also two of the top suppliers of crude oil to China, along with Saudi Arabia.

The move would mark a major step in reviving usage of the currency of the world’s second-largest economy for offshore payments after several years of on-again, off-again measures.

If successful, it could also trigger shifting other product payments to the yuan, including metals and mining raw materials.

All three sources, who spoke to Reuters on the condition that they not be named, said the plans were at early stages. Officials at some of China’s state oil companies said they had not heard of such plans.

Crude futures

The plans coincide with this week’s launch of the first Chinese crude oil futures in Shanghai, which many expect to become a third global price benchmark alongside Brent and West Texas Intermediate crude.

Shanghai’s new crude contract is traded in yuan.

Besides the potential of giving China more power over global oil prices, “this will help the Chinese government in its efforts to internationalize renminbi (yuan),” said Sushant Gupta, research director at energy consultancy Wood Mackenzie.

Unipec, trading arm of Asia’s largest refiner Sinopec , has already inked a first deal to import Middle East crude priced against the newly-launched Shanghai crude futures contract.

U.S. bank Goldman Sachs said in a note to clients this week that the success of Shanghai’s crude futures was “indirectly promoting the use of the Chinese currency.”

People’s Bank of China (PBOC), the country’s central bank, did not respond to a Reuters request for comment on the plan. The Ministry of Commerce (MOFCOM) also declined to comment.

Internationalization

China’s plan to use yuan to pay for oil comes amid a more than year-long gradual strengthening of the currency, which looks set to post a fifth straight quarterly gain, its longest winning streak since 2013.

The yuan retained its No.5 ranking as a domestic and global payment currency in January this year, unmoved from a year ago, but its share among other currencies fell to 1.7 percent from 2.5 percent, according to industry tracker SWIFT.

A slew of measures put in place in the last 1-1/2 years to rein in capital flowing out of the country amid a slide in yuan value has taken off some its shine as a global payment currency.

But the yuan has now appreciated 3.4 percent against the dollar so far this year, with solid gains in recent sessions.

“For PBOC and other regulators, internationalization of the yuan is clearly one of the priorities now, and if this plan goes off smoothly then they can start thinking about replicating this model for other commodities purchases,” said the person briefed on the matter.

It would not be easy, however, for China to shift the bulk of its commodity purchases to the yuan because of the currency’s illiquidity in forex markets.

Nearly 90 percent of all transactions in the $5 trillion-a-day currency markets involve the dollar on one side of a trade, while only 4 percent use the yuan, as per a triennial forex survey by the Bank for International Settlements.

Oil settles higher, scores a second straight weekly gain

MarketWatch

Baker Hughes reports a weekly rise in active U.S. oil-rig count

AFP/Getty Images
By

MYRAP. SAEFONG

MARKETS/COMMODITIES REPORTER

WILLIAMWATTS

DEPUTY MARKETS EDITOR

Oil settled higher Friday, following an intraday U-turn that prompted a swing to a weekly gain.

Expectations for growth in global crude demand outweighed pressure from concerns over strong U.S. production and a weekly rise in the number of active domestic oil rigs.

April West Texas Intermediate crude CLJ8, +1.73%  on the New York Mercantile Exchange rose $1.15, or 1.9%, to settle at $62.34 a barrel after making only modest moves in either direction in early trading. It saw its highest finish since March 6 and climbed roughly 0.5% for the week, according to FactSet data.

May Brent crude LCOK8, +1.34% the global benchmark, added $1.09, or 1.7%, to end at $66.21 a barrel on ICE Futures Europe. That was its highest finish month to date and it rose 1.1% for the week.

The market went “from low volatility to wow,” said Phil Flynn, senior market analyst at Price Futures Group. There really wasn’t any one particular piece of fundamental news that drove the intraday turn higher, he said, adding that “when oil went higher on the week, prices exploded.”

“The consumer sentiment number was strong and that really signals record gasoline demand ahead,” he said. U.S. consumer sentiment in March rose to its highest reading in 14 years.

A monthly oil report from the International Energy Agency on Thursday said that global oil demand should grow by 1.5 million barrels a day, to average 99.3 million barrels a day in 2018. That was an upward revision of 90,000 barrels a day, compared with last month’s report.

Read: How Venezuela could be the ‘final element’ that tips oil market into deficit

But traders have been concerned about surging U.S. shale output.

Offering a peek at future production, Baker Hughes BHGE, +3.45%  reported Friday that the number of active U.S. rigs drilling for oil rose by four to 800 this week. The oil-rig count had fallen by four last week, marking their first decline in seven weeks.

The oil market is also seeing “a lot of short covering ahead of the April expiration on Tuesday” for WTI oil futures, said Flynn.

Meanwhile, expectations that the Trump administration will take a harder line on Iran’s nuclear deal or could move to impose an embargo on Venezuelan crude exports were providing some modest support, said Robert Yawger, director for energy at Mizuho Securities, in a Friday note.

Read: Here’s how Rex Tillerson’s exit could move oil prices

The replacement of Secretary of State Rex Tillerson with Central Intelligence Agency Director Mike Pompeo is seen as heralding a potential tougher stance on Iran that could result in a partial reinstatement of export sanctions, analysts said. Other potential changes, including reports that national security adviser H.R. McMaster could soon be replaced, have underlined those expectations. The White House denied any changes were coming to the National Security Council.

In other energy trading, April natural gas NGJ18, +0.56%  rose 0.3% to $2.688 per million British thermal units, but still marked a weekly loss of 1.6%.

April gasoline RBJ8, +0.87%  added 1.1% to $1.946 a gallon—roughly 2.2% higher for the week, while April heating oil HOJ8, +0.93% rose 1% to $1.912 a gallon, for weekly rise of 1.3%.

US oil prices extend gains on compliance with output cuts

CNBC

  • U.S. oil rose for a third day on Friday after a survey showed strong compliance with output cuts by OPEC and others.

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 rose for a third day on Friday after a survey showed strong compliance with output cuts by OPEC and others including Russia, offsetting concerns about surging U.S. production.

Brent futures, the global benchmark, were up 19 cents, or 0.3 percent, at $69.84 a barrel by 0352 GMT.

U.S. West Texas Intermediate (WTI) crude was up 28 cents, or 0.4 percent, at $66.08 a barrel.

Production by the Organization of the Petroleum Exporting Countries (OPEC) rose in January from an eight-month low as higher output from Nigeria and Saudi Arabia offset a further decline in Venezuela and strong compliance with a supply reduction pact, a Reuters survey showed.

OPEC pumped 32.4 million barrels per day (bpd) in January, the survey found, up 100,000 bpd from December. Last month’s total was revised down by 110,000 bpd to the lowest since April 2017.

Even so, adherence by producers included in the deal to curb supply rose to 138 percent from 137 percent in December, the survey found, suggesting commitment is not wavering even as oil prices hit their highest level since 2014.

“It underscores the commitment of the cartel, and their Russian partners, to keep a floor under the oil price,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

That is drawing investors’ focus away from the rise in U.S. production.U.S. crude output surpassed 10 million bpd in November for the first time since 1970, the Energy Information Administration said this week.