Oil boosted by dollar weakness, but headwinds loom

CNBC

  • The U.S. dollar fell to 2014 lows this week.
  • A weaker dollar supported general fuel demand.
  • But demand outlook weakened ahead of refinery maintenance season.

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

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

The oil rally paused for breath on Friday after hitting fresh three-year highs in the previous session, but weakness in the dollar continued to underpin prices.

Brent crude futures stood at $70.49 per barrel at 1047 GMT, 7 cents above their last close. On Thursday, the contract climbed to as high as $71.28 per barrel, its highest since 2014.

U.S. West Texas Intermediate (WTI) crude futures were at $65.66 a barrel, up 15 cents from their previous close, recovering from a session-low of $64.91 a barrel. On Thursday, they also reached their highest since December 2014, at $66.66 per barrel.

Both contracts were set for weekly gains after support from a weakening dollar, which on Friday hit new three-year lows against a basket of other leading currencies.

“For as long as the U.S. dollar remains on the defensive, no more pronounced price fall on the oil market is likely to ensue,” Commerzbank analyst Carsten Fritsch said in a note.

As oil is traded in dollars, swings in the greenback can impact oil demand as they affect the price of fuel purchases for countries using other currencies. Still, crude prices were capped by seasonally weakening demand.

Georgi Slavov, head of research at commodities brokerage Marex Spectron, said despite a generally healthy outlook, there were short-term oil demand headwinds due to the coming end of winter in the northern hemisphere.

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Many refiners shut down after winter for maintenance, resulting in lower orders for crude, their most important feedstock.

“Demand is starting to weaken as … refining capacity was taken out of the market,” Slavov said.

This is reflecting in oil inventories. U.S. bank Morgan Stanley noted that global oil stocks built up overall in the week ending Jan. 19.

On the supply side, U.S. oil production is expected to hit 10 million bpd soon, putting it on a par with top exporter Saudi Arabia.

Output has grown by more than 17 percent since mid-2016. Only Russia produces more, averaging 10.98 million bpd in 2017.

Rising U.S. output threatens to undermine the supply restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, aimed at propping up prices.

The cuts, coupled with demand growth, have contributed to a near 60 percent rise in oil prices since mid-2017 as excess crude inventories have been drawn down.

Oil: OPEC meeting at month-end in focus

CNBC

  • Oil markets were tepid Monday ahead of an OPEC meeting at the end of the month to decide whether to continue output cuts
  • Brent crude futures were at $62.56 per barrel, down 0.3 percent from their last close
  • U.S. West Texas Intermediate crude futures were at $56.59 a barrel, up 0.1 percent from their last settlement

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Oil markets were tepid on Monday as traders were reluctant to take on big new positions ahead of an OPEC meeting at the end of the month, when the producer club is expected to decide whether to continue output cuts aimed at propping up prices.

Brent crude futures, the international benchmark for oil prices, were at $62.56 per barrel at 0439 GMT, down 16 cents, or 0.3 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $56.59 a barrel, up 4 cents, or 0.1 percent, from their last settlement.

Traders said they were avoiding taking on large new positions due to uncertainty in markets.

The Organization of the Petroleum Exporting Countries (OPEC), together with a group of non-OPEC producers led by Russia, has been restraining output since the start of this year in a bid to end a global supply overhang and prop up prices.

The deal to curb output is due to expire in March 2018, but OPEC will meet on Nov. 30 to discuss the outlook for the policy.

OPEC is expected to agree an extension of the cut as storage levels remain high despite recent drawdowns, although there are doubts about the willingness of some participants to continue to restrain output.

“(The) OPEC meeting remains the key sector catalyst into year-end … The market expectation is for an extension through 2018, created by OPEC comments early this fall … (but) there is increased risk that OPEC delays the extension decision,” U.S. bank Morgan Stanley said on Monday in a note to clients.

Morgan Stanley said that the question over extended cuts “has shifted to non-OPEC participants’ willingness to extend, primarily Russia”.

Despite this, Greg McKenna of futures brokerage AxiTrader said it was “worth noting data showed more longs added by the speculative community”, indicating expectations of rising prices.

In the United States, the number of rigs drilling for new oil production remained unchanged in the week to Nov. 17, at 738, data from oil services firm Baker Hughes showed on Friday.

Oil steadies as Middle East tensions offset concern over China demand

CNBC

  • China’s October crude imports fall to 1-year low
  • But ongoing OPEC-led supply cuts support crude prices
  • Traders concerned about rising Middle East tension

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 steadied on Wednesday as Chinese crude imports fell to a one-year low, but losses were offset by investor caution over rising political tensions in the Middle East.

Traders said they were closely watching escalating tensions in the Middle East, especially between regional rivals Saudi Arabia and Iran.

Brent futures were at $63.80 a barrel at 1005 GMT, up 11 cents, while U.S. West Texas Intermediate (WTI) futureswere down 8 cents at $57.12 a barrel.

Brent crude hit $64.65 earlier this week, its highest since mid-2015, as political tensions in the Middle East escalated after a sweeping anti-corruption purge in top crude exporter Saudi Arabia, which in turn has confronted Iran over the conflict in Yemen.

China’s October oil imports fell to just 7.3 million barrels per day from a near record-high of about 9 million bpd in September, according to data from the General Administration of Customs on Wednesday. That is the lowest level since October 2016, though imports were up 7.8 percent from a year ago.

Li Yan, oil analyst with Zibo Longzhong Information Group, said the lower imports reflected fewer purchases from independent refineries, “as many of them are running out of crude quotas for this year.”

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Here’s what Dennis Gartman finds ‘fascinating’ about oil’s reaction to the Saudi shakeup  

For next year, however, independent refiners are likely to boost their imports again as authorities on Wednesday raised the 2018 crude oil import quota by 55 percent over 2017 to 2.85 million bpd.

The oil price has gained around 14 percent in the last month alone, propelled largely by evidence that OPEC’s efforts, together with those of its partners to curtail output, is helping erode a global overhang of unused crude.

“Stronger oil fundamentals and investor inflows have been the catalyst for higher oil prices, but adding further support now is a focus on several geopolitical risks that have been looming over oil markets for a while,” said analysts at Citi.

The Organization of the Petroleum Exporting Countries‘ 2017 World Oil Outlook showed the group predicts demand for its crude will rise more slowly than previously expected in the next two years, as higher prices from its supply policy stimulate output growth from rival producers.

“The call on OPEC in 2019 envisaged by OPEC was reduced by 600,000 to a good 33 million bpd, and is expected to remain at roughly this level until 2025,” Commerzbank said in a note.

“Currently, OPEC is only producing somewhat less than this amount. This leaves OPEC virtually no scope to expand production in the next eight years.”