Can $80 Oil Be Justified?

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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 gains as dollar sags near 3-year low; many Asian markets shut

CNBC

  • The U.S. crude contract has risen nearly 4 percent this week after losing nearly 10 percent last week.

Oil prices edged higher on Friday as the dollar stood near a three-year low in subdued Asian trade, with many markets closed for the Lunar New Year holiday.
Oil pumpjacks in silhouette at sunset.

Oil pumpjacks in silhouette at sunset.

U.S. crude for March delivery was up 16 cents, or 0.3 percent, at $61.50 a barrel by 0200 GMT, after settling up 74 cents on Thursday. For the week, the contract has risen nearly 4 percent after losing nearly 10 percent last week.

Brent crude was up 26 cents, or 0.4 percent, at $64.59 after settling down 3 cents. Brent is up nearly 3 percent for the week after falling more than 8 percent last week.

“Oil is getting support from a rebound in global stock markets and a weak dollar, but the upside is limited due to a projection for rising U.S. production,” said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo. “The market is quiet due to a slew of holidays in Asia.”

The dollar languished near a three-year low against a basket of currencies on Friday, headed for its biggest weekly loss in two years. A weaker dollar often boosts prices for oil and other dollar-denominated commodities.

Asian shares extended their recovery from two-month lows into a fifth day on Friday as Wall Street’s market volatility gauge fell, although Chinese and most Southeast Asian financial markets were closed for the Lunar New Year holiday.

Here's where oil prices are headed next: Oil analyst

Here’s where oil prices are headed next: Oil analyst  

Oil producers led by Saudi Arabia and Russia aim to draft an agreement on a long-term alliance by the end of this year, United Arab Emiratesenergy minister Suhail al-Mazroui said on Thursday. OPEC and non-OPEC producers including Russia have been restraining production by a total 1.8 million barrels per day in a bid to prop up prices under a deal that is to expire at the end of 2018.

The move comes at a time when Asian demand is on the rise. Indiaimported a record 4.93 million bpd in January to feed its expanded refining capacity and meet rising demand, data showed.

Oil won support earlier in the week after Saudi Energy Minister Khalid al-Falih said OPEC hopes to keep limiting crude output to leave the market tight.

However, surging U.S. production is offsetting OPEC’s efforts to curb supplies. U.S. crude output hit a record 10.27 million barrels per day last week, the Energy Information Administration (EIA) said on Wednesday, making it a bigger producer than Saudi Arabia.

Russia has ‘learned its lesson’ about oil price volatility, wealth fund chief says                      

CNBC

  • Speaking from the World Economic Forum in Davos, RDIF CEO Kirill Dmitriev emphasized the importance of diversification in the Russian economy
  • RDIF is the $10 billion sovereign wealth fund created by Russia’s government to co-invest in the Russian economy alongside other countries
Kirill Dmitriev, CEO of the Russian Direct Investment Fund at the APEC CEO forum in Beijing, China, on Nov. 10, 2014.

Tomohiro Ohsumi | Bloomberg | Getty Images
Kirill Dmitriev, CEO of the Russian Direct Investment Fund at the APEC CEO forum in Beijing, China, on Nov. 10, 2014.

Russia has “learned its lesson” about oil price volatility, the chief executive of the Russian Direct Investment Fund (RDIF) told CNBC Tuesday.

Speaking from the World Economic Forum in Davos, RDIF CEO Kirill Dmitriev emphasized the importance of diversification in the Russian economy.

“For the Russian economy we continue to focus on diversification. We expect technology to make up 25 percent of our portfolio,” Dmitriev said. “Infrastructure and tech still need to be important and I think Russia learned its lesson about oil price volatility, so diversification and investment in those areas is very key.”

RDIF is the $10 billion sovereign wealth fund created by Russia’s government to co-invest in the Russian economy alongside other countries. Dmitriev was made chief of the fund in 2011 to improve foreign investment flows and investor confidence in the country.

The head of the Kremlin’s investment vehicle was positive about the country’s growth forecast, despite the pressure of U.S. sanctions issued in both 2014 and 2016 over Russia’s annexation of Crimea peninsula and alleged Russian interference in the latest U.S. election.

“Russia saw major increases of FDI (foreign direct investment) last year of 25 percent, which is one of the highest levels of FDI in (our) history, and it’s related to Russia resuming growth,” Dmitriev said. “We had almost 2 percent GDP growth last year, we’ll have more than 2 percent next year.”

The World Bank reported Russia’s 2017 GDP growth at 1.7 percent for 2017, and forecasts the same for 2018.

Russia has learnt its lesson about oil price volatility: RDIF CEO

Russia has learned its lesson about oil price volatility: RDIF CEO  

‘Russian economy is feeling quite strong right now’

“Oil prices are stable, our stock market is at one of its peak levels,” he continued. “Obviously there are some political challenges, some uncertainty, but there is no question the Russian economy is feeling quite strong right now.”

The multibillion dollar fund has been under U.S. government sanctions since 2015 because of ties to its parent, Russian bank Vnesheconombank (VEB), which has been dubbed the “bank of spies” by members of the U.S. intelligence community. VEB is also under U.S. sanctions, according to the U.S. Treasury Department.

In 2016, RDIF was able to transfer its management company away to another Russian entity in order to distance itself from VEB and reassure investors of its independence. The fund has emphasized that joint projects, not sanctions, should be investors’ focus.

Attracting foreign investment is a major priority for the Russian government. Russia’s economy plunged into recession between 2014 and 2017, when both the imposition of U.S. sanctions and a nearly 50 percent drop in global oil prices caused the ruble to collapse.

Financial bodies observed a moderate recovery for the Russian Federation at the end of 2017 thanks to higher commodity prices, strengthening global demand and lower interest rates.

Oil price rally will not persuade OPEC to end production cuts, analyst says

CNBC

  • Crude futures have climbed to highs not seen since the early days of a slump in December 2014, prompting some analysts to suggest the recent price rally could hasten the process of OPEC devising an exit strategy
  • “We will see compliance drop in the second half of the year (so) they are going to want to really cement the gains they have made and the rebalancing they have achieved,” Richard Mallinson, geopolitical analyst at Energy Aspects, told CNBC on Friday
  • In recent weeks, big investment banks have raised their target price for oil as crude futures have risen to multi-year highs

Nervousness about what oil ministers say

Market views future of OPEC deal as a binary: Energy Aspects  

The recent uptick in oil prices is not likely to be enough to persuade OPEC to end production cuts this summer, Richard Mallinson, geopolitical analyst at Energy Aspects, told CNBC on Friday.

Crude futures have climbed to highs not seen since the early days of a slump in December 2014, prompting some analysts to suggest the recent price rally could hasten the process of OPEC devising an exit strategy. Brent crude futures hit a peak of $70.37 a barrel on Monday, with the global benchmark since paring some of its recent gains to trade at $68.90 on Friday afternoon.

However, when asked at what stage oil traders could expect OPEC to begin phasing out the current level of production cuts, Mallinson said the major oil producing group would need to wait until the middle of 2018 before it could “confidently” feel the market had leveled out.

Nonetheless, he did not expect the 14-member cartel to end its deal with 10 other allied producers in June.

“We will see compliance drop in the second half of the year (so) they are going to want to really cement the gains they have made and the rebalancing they have achieved,” he added.

Big banks raise oil price targets

In recent weeks, big investment banks have raised their target price for oil as crude futures have risen to multi-year highs.

Bank of America Merrill Lynch and Morgan Stanley both upped their forecasts for crude prices this week, while Goldman Sachs said the risks of prices overshooting its current targets are mounting.

Pumpjacks in an oil field.

Paul Giamou | Aurora | Getty Images
Pumpjacks in an oil field.

The main price driver has been a supply cut from OPEC and Russia, who started to withhold output in January last year. The OPEC-led production cuts, that are scheduled to last throughout 2018, are aimed at clearing a supply overhang and propping up prices.

OPEC is next scheduled to meet in Vienna, Austria, on June 22.

Mallinson said that while it was understandable for oil traders to be wary of the group’s summer meeting, he emphasized they would be mistaken in thinking the major oil producing group’s only options were to either stick with the current level of supply cuts or to allow flat-out global production.

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC’s reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil-producing nations — in late 2016.

— CNBC’s Tom DiChristoper contributed to this report.

‘Relentless’ growth could see the US topple Russia, Saudi Arabia as world’s largest oil producer, IEA says

CNBC

  • “This year promises to be a record-setting one for the U.S.,” the IEA said in its closely-watched report published Friday
  • The latest monthly report from the IEA comes at a time when crude futures have climbed to highs not seen since the early days of a slump in December 2014
  • One of the main beneficiaries of OPEC-led production cuts is the producers’ major competitor, U.S. shale oil. U.S. oil producers are staging a dramatic comeback amid a recovering oil price that has allowed many of them to restart operations.

IEA’s Atkinson: Low Venezuelan oil production hastens market rebalancing

IEA: Expect a volatile year for oil prices  

The U.S. is well-placed to overtake the likes of Saudi Arabia and Russiaas the world’s leading energy producer over the next 12 months, according to the latest monthly report from the International Energy Agency (IEA).

“This year promises to be a record-setting one for the U.S.,” the IEA said in its closely-watched report published Friday.

“Relentless growth should see the U.S. hit historic highs above 10 million barrels a day (in production), overtaking Saudi Arabia and rivaling Russia during the course of 2018 — provided OPEC and non-OPEC restraints remain in place,” the Paris-based organization added.

‘Unchartered waters’

The latest monthly report from the IEA comes at a time when crude futures have climbed to highs not seen since the early days of a slump in December 2014. Brent crude futures hit a peak of $70.37 a barrel on Monday, with the global benchmark since paring some of its recent gains to trade at $68.69 on Friday morning.

“What we are trying to understand is the responsiveness of the U.S. shale producers. And because of the dynamism of the industry, the innovation and the vast number of players in that space … to some extent, we are in unchartered waters,” Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC on Friday.

Atkinson said that given the recent rally in oil prices, the IEA was expecting a “wave of new production” from the U.S. in the coming months. He added OPEC would then need to “accommodate” for that and make its own judgment at its next meeting in June as to what its response should be.

IEA predicts a slowdown in crude demand growth in 2018

IEA’s Atkinson: Low Venezuelan oil production hastens market rebalancing  

The main price driver has been a supply cut from major oil producing group OPEC and Russia, who started to withhold output in January last year. The production cuts by OPEC and 10 other allied producers, which are scheduled to last throughout 2018, are aimed at clearing a supply overhang and propping up prices.

One of the main beneficiaries of these cuts is the producers’ major competitor, U.S. shale oil. U.S. oil producers are staging a dramatic comeback amid a recovering oil price that has allowed many of them to restart operations.

US ‘beat all expectations’ in 2017

U.S. crude production stands at 9.9 million barrels a day, according to the IEA, which is the country’s highest level in almost 50 years. That level of supply puts the U.S. neck-and-neck with OPEC kingpin Saudi Arabia — the world’s second-largest producer after Russia.

“The stage was set for a strong expansion last year, when non-OPEC supply, led by the U.S., returned to growth of 0.7 million barrels a day and pushed up world production despite OPEC and non-OPEC cuts,” the IEA said.

“U.S. growth of 0.6 million barrels a day in 2017 beat all expectations, even with a moderate price response to the output deal as the shale industry bounced back — profiting from cost cuts, stepped up drilling activity and efficiency measures enforced during the downturn,” the group said.

A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.

Brittany Sowacke | Bloomberg | Getty Images
A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.

In recent years, America’s unprecedented oil and gas boom has been driven by one factor above all others — and that’s shale. The so-called shale revolution could help to alleviate Washington’s reliance on foreign oil, including from turbulent Middle Eastern states, while also supporting a bid to export to more countries around the world.

The IEA’s estimates of global oil product demand in 2017 and 2018 were left roughly unchanged at 97.8 million barrels a day and 99.1 million barrels a day, respectively.

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC’s reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil producing nations — in late 2016.

Oil dips away from levels last seen in late 2014, but analysts say market supported

CNBC

  • Oil prices eased on Friday after hitting their highest levels since December, 2014 the previous day
  • Although analysts and traders have been warning of the risks of a downward price correction since the start of the year, they point out that overall market conditions remain strong

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 eased on Friday after hitting their highest levels since December, 2014 the previous day.

Although analysts and traders have been warning of the risks of a downward price correction since the start of the year, they point out that overall market conditions remain strong, largely due to ongoing production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia.

U.S. West Texas Intermediate (WTI) crude futures were at $63.62 a barrel at 0524 GMT – 18 cents, or 0.3 percent, below their last settlement. WTI the day before hit its strongest since late 2014 at $64.77 a barrel.

Brent crude futures were at $69.27 a barrel, virtually unchanged from their last close. Brent also marked a December-2014 high the previous day, at $70.05 a barrel.

“OPEC has acted successfully to reduce the inventory overhang and demand growth remains robust in the short term,” said Sanjeev Bahl, analyst at Edison Investment Research in a 2018 outlook.

The production cuts started in January last year and are set to last through 2018.

“There is potential for oil prices to move higher as inventories normalize,” Bahl said.

U.S. commercial crude oil 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.

Crude oil to push towards $75 a barrel, says hedge fund manager Robert Raymond

Crude oil to push towards $75 a barrel, says hedge fund manager Robert Raymond  

Fuel price hedging company Global Risk Management said in its 2018 outlook that “the likelihood of elevated oil prices this year seems imminent”, largely due to the ongoing supply cuts led by OPEC and Russia as well as political risk especially in Iran, Venezuela and Libya.

Global Risk Management said this was despite U.S. oil production, currently at 9.5 million barrels per day (bpd), likely breaking through 10 million bpd.

Another factor that may hamper crude prices would be a drop-off in orders from refineries.

In Asia, Singapore average refinery profit margins have fallen below $6 per barrel this month, their lowest seasonal level in five years.

As a result, some refiners have already scaled back their output, reducing demand for feedstock crude.

China’s crude oil imports in December eased to 33.7 million tonnes (7.97 million bpd), versus 37.04 million tonnes in November, customs data showed on Friday.

Meanwhile, its December oil products exports hit a record 6.17 million tonnes, as refiners churn out more fuel than even thirsty China can absorb.

Taking into account price supportive and pressuring factors, a market survey of over 1,000 energy professionals conducted by Reuters in January showed crude oil price expectations clustered in a range of $60-$70 per barrel for 2018.

Oil prices slip away from 2015 highs, but market remains tight

CNBC

  • Oil prices on Wednesday slipped from a two-and-a-half year high hit the previous session
  • Gradual resumption on the Forties pipeline is helping ease pressure after an attack on a Libyan pipeline

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices on Wednesday slipped away from two-and-a-half year highs hit the previous session as the gradual resumption of flows through a major North Sea pipeline made up for supply disruption in Libya.

But the two outages in quick succession have highlighted how much tighter global oil markets have become a year into supply cuts led by OPEC and Russia.

At 0210 GMT U.S. West Texas Intermediate (WTI) crude futures were at $59.74 a barrel, down 23 cents from their last settlement. WTI broke through $60 a barrel for the first time since June 2015 in the previous session.

Brent crude futures were at $66.66 a barrel, down 36 cents. Brent broke through $67 for the first time since May 2015 the previous day.

The dips were a result of the gradual return of the 450,000 barrels per day (bpd) capacity Forties pipeline system in the North Sea. Flows through Forties will return to normal early in the New Year, operator Ineos said on Tuesday.

The gradual Forties resumption is helping ease pressure after an attack on a Libyan pipeline led to the outage of almost 100,000 bpd of supply.

2018 to be a flat year for oil: Gina Sanchez  

Price pressure also rose after Saudi Arabia released its 2018 state budget on Tuesday, the largest in the kingdom’s history, which was seen as an indicator that the world’s biggest crude exporter would require higher oil prices in order to meet its financial needs.

“The Saudi budget and Libyan attack on a pipeline have driven prices sharply higher,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Both the Forties and Libyan outages, which together amount to around 500,000 bpd, are small in a global context where both production and demand are approaching 100 million bpd.

But the disruptions highlight the fact that markets have tightened significantly a year into voluntary supply restraint led by top producer Russia and the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC).

Data from the U.S. Energy Information Administration (EIA) shows that following rampant oversupply in 2015, global oil markets gradually came into balance by 2016 and started to show a slight supply deficit this year, resulting in a reduction of global fuel inventories.

EIA data implies a slight supply shortfall of 180,000 bpd for the firstquarter of 2018.

OPEC and Russia started withholding production last January, and the current schedule is to continue cutting throughout 2018.

A major factor countering efforts by OPEC and Russia efforts to prop up prices is U.S. oil production, which has soared more than 16 percent since mid-2016 and is fast approaching 10 million bpd.

Only OPEC king-pin Saudi Arabia and Russia produce more.

The latest U.S. production figures are due to be published by the EIA on Thursday.