Trump’s sanctions on Iran may be creating an oil trading boom — in China

CNBC

  • Trade in Chinese yuan-denominated crude oil futures has jumped since President Donald Trump pulled the U.S. out of the Iran nuclear deal.
  • There is speculation that restrictions on Iranian oil sales and the lack of access to dollar financing will spur demand for the Shanghai-listed derivatives.

A clerk counts stacks of Chinese yuan at a bank in Beijing, China.

Getty Images
A clerk counts stacks of Chinese yuan at a bank in Beijing, China.

Trade in Chinese yuan-denominated crude oil futures has surged since President Donald Trump pulled the U.S. out of the Iran nuclear deal.

Launched on March 26, crude oil futures on the Shanghai International Energy Exchange (INE) were met with fanfare — and skepticism about how much a state-managed marketplace could displace the well-established crude trade in the New York Mercantile Exchange’s West Texas Intermediate and the Intercontinental Exchange’s Brent futures.

“Beijing ‘s attempts to ‘internationalize’ the contract appear to have paid off.”-BMI Research

But Trump’s move to reimpose sanctions on Iran may have spurred interest in the Chinese oil futures. Last Wednesday, daily trade volumes in INE oil futures hit a record of over 240,000 lots, double what they were on Tuesday when news of the renewed sanctions broke.

“There has been speculation that restrictions on Iranian oil sales and the lack of access to dollar financing will boost demand for yuan-denominated Shanghai futures,” said BMI Research in a note on Monday. “With China deepening its energy ties with Iran and given Beijing’s desire both to support the contact and — relatedly — to further internationalize the use of its currency, payment in yuan and benchmarking against Shanghai futures would seem logical.”

Veteran oil trader John Driscoll told CNBC last week that Iranian traders have the option of trading in Chinese yuan-denominated crude oil futures on the Shanghai International Energy Exchange — circumventing any restrictions on dollar-denominated trade and U.S. banks.

Doubts about how long it will last

Even so, some industry watchers remain skeptical over the long-term impact Iran will have on the Chinese futures, as Iranian crude is not deliverable into the Shanghai oil contract.

Even so, interest in the Shanghai oil futures have surpassed expectations, with Chinese state-owned companies and foreign interests taking part in the trade.

At least one oil sales agreement has been signed with state-owned major Sinopec, Reuters reported.

“Concerns over heavy state dominance in the oil sector does not appear to be dampening participation in the contract, neither does its denomination in yuan and the added FX risks this brings,” said BMI, adding that the futures are gaining tracing.

“Beijing ‘s attempts to ‘internationalize’ the contract appear to have paid off,” it added.

Oil prices set for weekly drop as concerns about rising supply weigh

CNBC

  • Oil prices were set to fall this week, with both benchmarks dropping slightly on Friday.
  • Investors were concerned rising supply from the U.S. and other nations threatened to undermine efforts by OPEC and other producers to tighten the market.

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 prices were set to fall this week, with both benchmarks dropping slightly on Friday, on concerns among investors about rising supply from the U.S. and other nations threatening to undermine efforts by OPEC and other producers to tighten the market.

West Texas Intermediate (WTI) oil futures for April delivery fell 3 cents, or 0.1 percent, to $61.16 a barrel at 0354 GMT, after settling up 23 cents on Thursday. WTI is set to fall 1.4 percent this week, reversing the previous week’s 1.3 percent gain.

Brent crude futures trading in London fell 7 cents to $65.05 a barrel after settling up 23 cents. Brent is down 0.7 percent for the week.

Several reports this week renewed investor focus on the potential for rising supply to overwhelm the expected gains in crude demand for 2018.

On Thursday, the International Energy Agency (IEA) said global oil supply increased in February by 700,000 barrels per day (bpd) from a year ago to 97.9 million barrels per day.

The IEA also said supply from producers outside of the Organization of the Petroleum Exporting Countries (OPEC), led by the United States, will grow by 1.8 million bpd this year versus an increase of 760,000 bpd last year.

The supply increase is more than the IEA’s expected demand growth forecast for this year of 1.5 million bpd.

The agency also reported that commercial oil inventories in industrialized nations rose in January for the first time in seven months.

That directly undermines the efforts of producers led by OPEC and Russia, the world’s biggest oil producer, to cut supply in order to reduce global stockpiles.

“The fact that the inventories rose despite intensifying output curbs led by OPEC shows how much non-OPEC supply has risen,” said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo.

“Crude prices have been checked by the increase in U.S. supply.”

OPEC and other producers began cutting supply in January 2017 to erase a global crude glut that had built up since 2014.

On Wednesday, the U.S. government reported that crude stockpiles there increased by a more-than-expected 5 million barrels, rising for a third straight week.

Oil prices got scant support from the equities market. Asian stocks declined on Friday, following a four-day losing streak in the S&P 500 a day earlier, amid concerns about more changes in the administration of U.S. President Donald Trump.

Recently, crude futures have moved in sync with equities.

Oil prices fall on relentless rise in US crude output

CNBC

  • U.S. crude oil production soared past 10 million barrels per day (bpd) in late 2017, overtaking output by top exporter Saudi Arabia.
  • U.S. production is expected to rise above 11 million bpd by late 2018, taking the top spot from Russia, according to the International Energy Agency.

Rig supervisor David Crow shows off the oil rig he manages for Elevation Resources at the Permian Basin drilling site in Andrews County, Texas, May 16, 2016.

Ann Saphir | Reuters

Oil prices fell on Tuesday, extending losses from the previous session, as the inexorable rise in U.S. crude output weighed on markets.

U.S. West Texas Intermediate (WTI) crude futures were at $61.25 a barrel at 0414 GMT, down 11 cents, or 0.2 percent, from their previous close.

Brent crude futures were at $64.85 per barrel, down 10 cents, or 0.2 percent.

Both crude benchmarks dropped by around 1 percent in their Monday sessions.

“Oil prices fell on the back of concerns that surging U.S. production … could push inventories in the U.S. higher,” ANZ bank said on Tuesday.

U.S. crude oil production soared past 10 million barrels per day (bpd) in late 2017, overtaking output by top exporter Saudi Arabia.

U.S. production is expected to rise above 11 million bpd by late 2018, taking the top spot from Russia, according to the International Energy Agency (IEA).

The rising U.S. output comes largely on the back of onshore shale oil production.

U.S. crude production from major shale formations is expected to rise by 131,000 bpd in April from the previous month to a record 6.95 million bpd, the U.S. Energy Information Administration (EIA) said in a monthly report on Monday.

“Oil prices moved lower … after (the) Energy Information Administration published a report that crude production from seven major U.S. shale plays is expected to see a climb,” said Stephen Innes, head of trading for Asia Pacific at futures brokerage OANDA in Singapore.

That expected increase would top the 105,000 bpd climb in March from the previous month, to what was then expected to be a record high of 6.82 million bpd, the EIA said.

The EIA is due to publish its latest weekly U.S. production data on Wednesday.

Oil falls as stronger dollar eclipses US inventory drop

CNBC

  • Stronger dollar makes oil costlier for some buyers
  • API report showed lower U.S. crude inventories

Oil pumpjacks in silhouette at sunset.

Oil pumpjacks in silhouette at sunset.

Oil prices fell on Thursday, dragged lower by a firmer dollar that offset support from a surprise decline in U.S. crude inventories.

Brent crude futures were down 28 cents at $65.14 a barrel by 1007 GMT, while West Texas Intermediate (WTI) futures dropped 37 cents to $61.31 a barrel.

The dollar rose to a one-week high against a basket of major currencies on Thursday, after minutes of the Federal Reserve‘s January meeting showed policymakers were more confident of the need to keep raising interest rates.

With the strengthening dollar, the oil price has lost nearly 10 percent since hitting a multi-year high above $70 in January.

RBC:  Two offsetting stories at play in the oil market this year

RBC: Two offsetting stories at play in the oil market this year  

“Given the market’s whipsaw reaction we could add another key takeaway, that recent heightened market volatility could be here to stay,” LCG markets strategist Jasper Lawler said.

The correlation between moves in the oil price and the dollar has strengthened in the last couple of weeks, as investors increasingly sell other assets to buy the U.S. currency on expectations of a faster pace of rate rises.

“The firming dollar continues to thwart investor sentiment despite the bullish inventory data,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA.

A stronger dollar pushes up the bill for countries paying for imports in other currencies, potentially curbing demand.

The American Petroleum Institute on Wednesday reported an unexpected drop in U.S. crude oil inventories by 907,000 barrels to 420.3 million barrels for the week to Feb. 16.

Geopolitical risk has heightened as a factor in crude oil prices

Geopolitical risk has heightened as a factor in crude oil prices  

Inventories usually rise at this time of year, as many refineries cut crude intake to conduct maintenance, but a bottleneck in Canada’s pipeline system has reduced U.S. imports and pushed U.S. stocks lower.

“Improved pipeline infrastructure to the Gulf coast and the decreased supply via TransCanada’s Keystone pipeline, sent … inventories tumbling,” Innes said.

But analysts said oil markets were still generally well supported due to rising demand for crude and production restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia.

“OPEC production curbs have stabilized the market. Adherence to (the) agreement has been relatively good,” Daniel Hynes, senior commodity strategist at ANZ bank, said in a report on Thursday.

Oil falls as dollar rises, US inventories expected to rise

CNBC

  • Dollar steadies against other leading currencies
  • Ongoing OPEC-led output cuts provide some support
  • Brent, WTI move in sync

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

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

Oil prices fell on Wednesday, weighed down by a rebound in the U.S. dollar from three-year lows hit last week and by an expected rise in U.S. crude production.

Brent crude futures were last down 71 cents at $64.54 a barrel by 1013 GMT, while West Texas Intermediate (WTI) crude futures fell 74 cents to $61.19 a barrel.

The premium of Brent over WTI widened to almost $3.60 a barrel, having neared its narrowest in six months on Tuesday as concern about a bottleneck of Canadian crude imports underpinned U.S. futures.

“A sense of harmony has returned this morning with both crude benchmarks ploughing a southerly furrow as the dollar gains further ground,” PVM Oil Associates analyst Stephen Brennock said.

The dollar rose against other major currencies, buoyed by the rise in short-term U.S. government bond yields their highest in over nine years and ahead of the release of the minutes of the Federal Reserve’s most recent policy-setting meeting, which may signal the pace of any interest-rate rises.

U.S. inventory data is due later in the day and stocks are expected to have risen by 1.3 million barrels in the week to Feb. 16, according to a Reuters poll.

RBC: Two offsetting stories at play in the oil market this year

RBC: Two offsetting stories at play in the oil market this year  

The Organization of the Petroleum Exporting Countries and other producers, including Russia, will discuss extending their existing cooperation for many more years when they meet in June as they seek to avoid major market shocks, the United Arab Emirates’ energy minister told Reuters on Tuesday.

The group has agreed to cut crude output by 1.8 million bpd throughout this year to force global inventories to drain.

Futures prices have also been dented by the physical markets, which are showing signs of seasonal weakness, given that most of the world’s refineries close, either partially or wholly, to conduct maintenance at this time of year and cut their crude intake as a result.

Differentials, or prices for physical barrels, have slid on both sides of the Atlantic and it is the cheaper sour, or more sulphourous, grades that have borne the brunt of the declines.

Prices for North Sea barrels on Tuesday recovered after hitting their lowest levels since mid-2017, as an overhang of surplus oil has materialised.

Light, sweet West African grades have proven to be the most resilient in the Atlantic basin, thanks in large part to demand from China, but Mediterranean crudes, including Russian Urals, have slid since the start of the year.

“European maintenance does not peak until May, two months later than last year, and demand in Q1 18 has been hobbled by unusually warm weather,” consultant Energy Aspects said.