Oil bounces above $63 after slide, but glut worries persist

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  • American Petroleum Institute says U.S. crude oil inventories are falling.
  • Fearing a glut, OPEC pushes for a supply curb.
  • Trump support for Saudi Arabia makes oil supply cut harder, say analysts.

Oil bounced above $63 a barrel on Wednesday to claw back some of the previous day’s 6 percent plunge, lifted by a report of an unexpected decline in U.S. crude inventories.

The American Petroleum Institute (API) said on Tuesday that U.S. crude inventories last week fell by 1.5 million barrels, easing concerns for now that a supply glut is building up.

“The move yesterday was extremely sharp; after such moves you expect to have some rebound,” said Olivier Jakob, analyst at Petromatrix. “The API reported a stock draw – it is not a big one but at least it’s not a 10-million-barrel build.”

Brent crude, the global benchmark, was up 92 cents to $63.45 per barrel at 0944 GMT and traded as high as $63.67. U.S. crudegained 98 cents to $54.41.

Yet Wednesday’s bounce did little to reverse overall market weakness. Crude fell more than 6 percent in the previous session and world equities tumbled as investors grew more worried about economic growth prospects.

Brent has fallen by more than 25 percent since reaching a 4-year high of $86.74 on Oct. 3, reflecting concern about forecasts of slowing demand in 2019 and record supply from Saudi Arabia, Russia and the United States.

Worried by the prospect of a new supply glut, the Organization of the Petroleum Exporting Countries is talking about a U-turn just months after increasing production.

OPEC, plus Russia and other non-OPEC producers, is considering a supply cut of between 1 million barrels per day (bpd) and 1.4 million bpd at a Dec. 6 meeting, sources familiar with the issue have said.

Still, Saudi Arabia may find taking action to support prices harder, analysts say, given U.S. pressure to keep them low and President Donald Trump standing by the Saudi crown prince in the wake of the murder of journalist Jamal Khashoggi.

Trump vowed on Tuesday to remain a “steadfast partner” of Saudi Arabia despite saying that Saudi Crown Prince Mohammed bin Salman may have known about a plan to murder Khashoggi.

“It is more difficult to expect a supply cut when you have the U.S. president giving full support to Saudi Arabia and asking Saudi to maintain low prices,” Jakob said.

Analysts at JBC Energy said Trump’s statement “highlights the potential for political fallout for Saudi itself from a hefty cut in production.”

Oil rises on expected OPEC cut, but markets remain wary 

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  • The Organization of the Petroleum Exporting Countries (OPEC), de-facto led by Saudi Arabia, is pushing for the producer cartel and its allies to cut 1 million to 1.4 million barrels per day (bpd) of supply.
  • Despite Monday’s gains, crude prices remain almost a quarter below their recent peaks in early October, weighed down by surging supply and a slowdown in demand growth.

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

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

Oil prices rose on Monday as traders expected top exporter Saudi Arabia to push producer club OPEC to cut supply towards the end of the year.

Despite that, market sentiment remains weak on signs of a demand slowdown amid deep trade disputes between the world’s two biggest economies, the United States and China.

Front-month Brent crude oil futures, the international benchmark for oil prices, were trading at $67.29 per barrel at 0045 GMT, up 53 cents, or 0.8 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures, were up 61 cents, or 1.1 percent, at $57.07 per barrel.

“The market’s bullish radar is still waiting for OPEC+ to deliver a sizeable cut number,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

The Organization of the Petroleum Exporting Countries (OPEC), de-facto led by Saudi Arabia, is pushing for the producer cartel and its allies to cut 1 million to 1.4 million barrels per day (bpd) of supply to adjust for a slowdown in demand growth and prevent oversupply.

Despite Monday’s gains, crude prices remain almost a quarter below their recent peaks in early October, weighed down by surging supply and a slowdown in demand growth.

On the demand-side, Japan’s October crude oil imports – which are the world’s fourth biggest, but which are in structural decline because of a falling population and improving energy efficiency – fell by 7.7 percent from the same month last year, to 2.77 million barrels per day (bpd), the Ministry of Finance said on Monday.

This comes as supply in the United States is surging.

U.S. energy firms added two oil rigs in the week to Nov. 16, bringing the total count to 888, the highest level since March 2015, a weekly report by energy services firm Baker Hughes said on Friday.

The rising drilling activity points to a further increase in U.S. crude oil production, which has already jumped by almost a quarter this year, to a record 11.7 million bpd.

Put off by a surge in supply and the slowdown in demand, financial markets have been becoming increasingly wary of the oil sector, with money managers cutting their bullish wagers on crude futures and options to the lowest level since June 2017, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

The speculator group cut its combined futures and options positions on U.S. and Brent crude during the week ended Nov. 13 to the lowest since June 27, 2017.

Oil prices jump 2 percent after Saudi Arabia announces December supply cut

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  • Oil prices rose by about one percent on Monday after top exporter Saudi Arabia announced a cut in supply for December, seen as a measure to halt a market slump that had seen crude decline by 20 percent since early October.
  • International benchmark Brent crude oil futures were at $71.11 per barrel at 0051 GMT, up 93 cents, or 1.3 percent from their last close.
  • U.S. West Texas Intermediate (WTI) crude oil futures were at $60.73 per barrel, up 54 cents, or 0.9 percent from their last settlement.

Oil pumpjacks in silhouette at sunset.

Oil pumpjacks in silhouette at sunset.

Oil prices jumped more than 1.5 percent on Monday after top exporter Saudi Arabia announced a supply cut in December and other producers also considered reductions heading into 2019.

Front-month Brent crude futures, a benchmark for global oil prices, were at $71.59 per barrel at 0749 GMT, up 2 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures rose 1.6 percent to $61.15 per barrel.

Saudi Arabia plans to reduce oil supply to world markets by 500,000 barrels per day (bpd) in December, its energy minister said on Sunday, as the country faces uncertain prospects in getting other producers to agree to a coordinated output cut.

Khalid al-Falih told reporters that Saudi Aramco’s customer nominations would fall by 500,000 bpd in December versus November due to seasonal lower demand. The cut represents a reduction in global oil supply of about 0.5 percent.

Saudi Arabia is the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC).

An official from Kuwait, also an OPEC member, on Monday said that major oil exporters over the weekend had “discussed a proposal for some kind of cut in (crude) supply next year”, although the official did not provide any detail.

OPEC’s second-biggest producer Iraq has also indicated it may join in such a move.

Peter Kiernan, lead energy analyst at the Economist Intelligence Unit in Singapore, said OPEC was “focused on mitigating downside risks” after crude prices declined by around 20 percent over a month following a supply surge, particularly from the top three producers, the United States, Russia and Saudi Arabia.

For consumers, the 20 percent oil price fall since early October was a relief.

“This (price fall) is great news for the externally challenged economies of Asia like Indonesia and Philippines, India too, and helps also where inflation has been a concern,” Robert Carnell, chief economist and Head of Research at ING Asia, told the Reuters Global Markets Forum on Monday.

Major emerging economies like India, Indonesia and Turkey came under strong pressure earlier this year as their currencies slumped against the dollar just as oil prices surged, eroding demand.

Beyond demand concerns, a big concern for Saudi Arabia and other traditional producers from the Middle East-dominated OPEC is the surge in U.S. output.

U.S. energy firms last week added 12 oil rigs in the week to Nov. 9 looking for new reserves, bringing the total count to 886, the highest level since March 2015, Baker Hughes energy services firm said on Friday.

The rig count indicates U.S. crude output, already at a record 11.6 million bpd, will increase further.

“One thing that is abundantly clear, OPEC is in for a shale shocker as U.S. crude production increased to a record 11.6 million barrels per day and will cross the 12 million threshold next year,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

Oil prices down on surging output, but Iran sanctions loom

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  • Crude output from Russia, the U.S. and Saudi Arabia surged in October.
  • The sharp increase in supply comes ahead of U.S. sanctions on Iran which are due to go into effect next week.

Oil prices fell on Friday as surging output by the world’s three largest producers outweighed supply concerns from the start of U.S. sanctions next week against Iran’s petroleum exports.

Front-month Brent crude futures were at $72.60 per barrel at 0441 GMT on Friday, down 29 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 24 cents, or 0.4 percent, at $63.45 a barrel.

Brent has fallen by over 12 percent since the beginning of October, while WTI has lost more than 13 percent in value.

“More troubling… is the shift in structure towards contango,” U.S. investment bank Jefferies said on Friday.

Contango implies oversupply as it means prices for future delivery are higher than for immediate dispatch.

This makes it attractive for traders to store oil for later sale, although Jefferies said “spreads are still insufficient to encourage physical storage.”

Prices for April 2019 delivery are around 20 cents above January.

Downward pressure on oil is also visible in the physical market, where Saudi Arabia is expected to cut December crude prices amid higher supply and a glut in refined products that has eroded refinery profits.

The Organization of the Petroleum Exporting Countries (OPEC) boosted oil production in October to 33.31 million barrels per day (bpd), a Reuters survey found this week, up 390,000 bpd from September and the highest by OPEC since December 2016.

In the United States, crude production has established itself well over 11 million bpd, and the U.S. is now running neck and neck with Russia for the title of top producer.

Russian production has risen to record high of 11.41 million bpd in October, up from 11.36 million bpd in September.

With Saudi Arabia pumping 10.65 million bpd in October, combined output from the top-three oil producers is at a record 33.41 million bpd, meaning that Russia, the United States and Saudi Arabia meet more than a third of the world’s almost 100 million bpd of consumption.

“This surge has driven the market into oversupply,” Jefferies said.

U.S. sanctions on Iran loom

Despite surging output, concerns lingered ahead of the start of U.S. sanctions against Iran’s petroleum exports from next week.

Iran’s biggest oil customers, all in Asia, are seeking sanction waivers.

“Potential waivers appear targeted at India and South Korea, and they require some reductions over current import volumes while still allowing oil to flow,” said Clayton Allen of Height Securities.

“We think Trump will agree to China importing some volumes, similar to the treatment that India and South Korea receive,” he said.

Japan is seeking a similar deal.

Despite these efforts, analysts said any potential Iranian oil sanction waivers would likely only be temporary.

“The U.S. may use waivers to slow-walk implementation, but these will not apply indefinitely,” he added.

Goldman Sachs said it expects Iran’s crude oil exports to fall to 1.15 million bpd by the end of the year, down from around 2.5 million bpd in mid-2018.

“We still expect that the global oil market will be in deficit in 4Q18,” the U.S. bank said.

By the end of 2019, however, Goldman expects Brent to fall to $65 a barrel, largely due to “the unleashing of Permian (U.S. shale) supply growth once new pipelines come online.”

Oil prices drop as focus shifts to oversupply

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  • Saudi Arabia’s OPEC governor said on Thursday the oil market could be heading into oversupply.
  • Oil prices have slumped this week amid declines in the stock markets.

Oil prices fell on Friday and were heading for a third weekly loss, pulled down as Saudi Arabia’s OPEC governor said the market may become oversupplied soon and after a slump in global equities clouded the outlook for demand.

Brent crude futures were down 51 cents, or 0.7 percent, at $76.38 a barrel by 0331 GMT. The global benchmark is on course for a weekly loss of over 4 percent.

U.S. crude was down 64 cents, or 1 percent, at $66.68 a barrel. The U.S. benchmark is set for a 3.5 percent loss this week.

“Bearish sentiment could force a re-test of support in the low $70.0 per barrel range,” Fitch Solutions said in a note on Friday.

Saudi Arabia’s OPEC governor said on Thursday that the oil market could face oversupply in the current quarter.

“The market in the fourth quarter could be shifting towards an oversupply situation as evidenced by rising inventories over the past few weeks,” Adeeb Al-Aama told Reuters.

Saudi Arabia Energy Minister Khalid Al-Falih said there could be a need for intervention to reduce oil stockpiles after increases in recent months.

U.S. crude oil stockpiles rose last week for the fifth consecutive week, while gasoline and distillate inventories fell, the Energy Information Administration said this week.

Falls in stock markets have roiled oil prices this week as Wall Street had its biggest daily decline since 2011.

“The near $10 per barrel drop in Brent crude seen over October is a spillover from the global sell-off in equities and broader risk-off sentiment in the market,” said Fitch Solutions.

Financial markets have been hit hard by a range of worries, including the U.S.-China trade war, a rout in emerging market currencies, rising borrowing costs and bond yields, and economic concerns in Italy.

There are also signs of a slowdown in global trade, with container and bulk freight rates dropping away after rising for most of 2018.

Despite this, Fitch Solutions said “fundamentals in oil … remain broadly bullish”, largely because of the U.S. sanctions against Iran’s oil exports, which start on Nov. 4.

Washington is putting pressure on governments around the world to stop importing oil from Iran.

Most, including its biggest customer China, are falling in line, and Iran has turned to storing its unsold oil on its tanker fleet in the hope that it can sell the crude off quickly once the sanctions are lifted again.