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

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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?

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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

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  • 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

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  • 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.