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The upcoming week: Crude Oil Futures

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Short Recollection of last week

 

Beginning by observing the Oil futures; they settled on nearly plane levels on Friday. But still registered the first weekly gain in a month. Inspired by the news that key crude producers will extend output cuts to the period after June;

Firstly, on Thursday, U.S. West Texas Intermediate crude came to the highest since May 3 at $48.22.

Secondly, the U.S. benchmark went up for $1.62, or around 3.4%, after posting three consecutive weekly declines.

Noteworthy, in London Futures Exchange, Brent oil for July delivery added on 7 cents. Later coming to settle at $50.84 a barrel by closing. The global benchmark hit $51.16 a day before. This level was not seen since May 2.

Thirdly, observing the weekly movement, London-traded Brent futures recorded a gain of $1.74, or nearly 3.5%.

 

OPEC & non-OPEC

OPEC and non-OPEC oil producing countries  are discussing the extension of a global supply cuts.

Recently, some officials have suggested the possibility of further & deeper production cuts to help clear a supply glut & rebalance the market completely.

Starting this week, crude sank to a five-month low. Loped by concern over increasing U.S. crude output that has shaken investors’ faith in the ability of OPEC to rebalance the market.

Fourthly, data from energy services company Baker Hughes showed on Friday that U.S. drillers last week added rigs for the 17th week in a row. Indicating that further gains in their production are ahead.

 

The further U.S. drilling

The U.S. rig count rose by 9 to 712, extending an 11-month drilling recovery to the highest level since August 2015.

Observing natural gas futures for June delivery, they rose 4.8 cents. Which makes it the highest level since January 26 at $3.424 per million. British thermal units, up 1.4% for the session and about 4.9% higher for the week.

All the participants in the market race will see recent weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday.  To groove the strength of demand in the world’s largest oil consumer.

 

Meanwhile, investors will keep an eye out for a monthly report from the IEA for further evidence that global producers are complying with an agreement to reduce output this year.

 

Inspired by Investing.com; here are some important next week’s events which will likely have impact on market & commodity trades:

 

Tuesday, May 16

The IEA is going to publish its monthly evaluation of oil markets.

Later in the session the API will publish its weekly report about U.S. oil supplies.

 

Wednesday, May 17

The U.S. Energy Information Administration is to release weekly data on oil and gasoline reserves.

 

Thursday, May 18

 

United States government will give a weekly report about Gas supplies reserves.

 

Friday, May 19

Baker Hughes operates in more than 90 countries, giving the oil and gas industry  info with services for oil drilling, formation evaluation, completion, production and reservoir consulting. It will release weekly data on the U.S. oil rig count in Friday.

 

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Oil Production; Summary of Main Oil News this week

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Russian energy ministry and output cut talks

The main official of Rosneft, Igor Sechin, said on Saturday that the Russian energy ministry had his backup in discussions over oil production cuts.

“The most important thing is to have a mechanism to defend our interests.”

In previous months, Sechin has expressed some suspicions about the ability of the OPEC. And its power to influence oil markets amid a shale oil production boom in the United States.

The countries: Oil producers, including OPEC and non-OPEC; agreed to cut output for 1.8 a day. This decision dates from last year, and will be active till June the 30th. It aims to reduce global oil inventories.

The Oil producing countries will meet later this month in Vienna, to discuss a possible extension of the deal.

 

Georgia nuclear plant construction (Southern Co)

Georgia Power and Westinghouse decided to transfer the Project management of Georgia nuclear power plant expansion, to Southern Co.

 

The temporary agreement until June 3 will allow construction of the plant expansion to continue.

Westinghouse Electric Co filed for bankruptcy in March, was hit by billions of dollars of cost overruns. At four nuclear reactors under construction, including at the Georgia project and another in South Carolina.

The Georgia project is owned by a group of utilities led by Southern Co.

Gasoline in India

Firstly, the gasoline consumption growth has been slowing since the middle of 2016, after rising for the previous two years.

Secondly, observing the last 9 months we see that consumption growth for most other fuels used for cooking and transportation is also slowing down.

 

Based on the current data, demand for liquefied petroleum gas and kerosene used for cooking, heating and lighting as well as diesel used for transport; all show signs of leveling off or falling in the first four months of 2017.

These trends maybe come from the demonetisation of large-denomination bank notes in India. They were announced at the start of November as part of the government’s anti-corruption campaign.

 

Crude Oil prices Impact:

 

Rising crude oil and refined fuel prices over the last year are also likely to have constrained the growth in consumption and other fuels.

Observing the retail gasoline prices, we note that they rose by around 10 percent between January 2016 and January 2017. While diesel prices climbed by almost 8 percent. (Ministry of Petroleum and Natural Gas)india

India’s middle class is pretty sensitive to increases in prices & costs, so they are curbing a demand for Oil. Their middle class, urban as well as rural, is emerging very fast.

Nevertheless the recent slowdown in consumption growth for gasoline and other fuels, it is too early to determine if the deceleration is temporary linked to demonetization and price rises or something more lasting.

India as a source of oil demand:

Noteworthy, India has been one of the most important sources of oil demand growth during the cuts. So any extended slowdown in consumption growth, would make the mission of global market harder. The rebalancing will be way more complicated.

 

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Oil prices lower every day; OPEC’s effective and efficient decisions needed

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Today, it was a day of 5-month lows in Oil prices. This happened because of bothers on OPEC glut, and whether it would be extended. Nevertheless promises from Saudi Arabia about Russia’s preparation to join OPEC’s future cuts.

 

Low Prices of Oil

U.S. West Texas Intermediate crude oil futures  were more than 3 percent down in early trading. They came to a price of less than $44 a barrel. Which makes it the lowest since Nov 14. Yesterday, oil was down for 4 percent.

Brent Crude also went down for 3%. It went to a price less than $47. The lowest since november the 30th. The 30th of November was the date when OPEC activated a price rally. The day they announced that the output cuts are to start in the first half of 2017.

Trade losses

Both landmarks sleeked losses to trade near Thursday’s close by 1320 GMT. “OPEC and non-OPEC nations were really near to agreeing a deal on supply cuts.” said Adeeb Al-Aama, Saudi’s OPEC Governor.

  • “Based on today’s data, there’s a growing conviction that a six-month extension may be needed to rebalance the market, but the length of the extension is not firm yet.”

Deeper cut is not so likely. Speculations say that OPEC indeed will extend the cuts on May 25th. But the question is what is initially good about this. The 1017 has and will have 1.8 million bpd. That is the agreement which OPEC countries made in the beginning.

Hedge funds had speeded up decrease of their long positions. Thursday was a day when Brent crude trading volumes came to a record high. Counting about 542,000 contracts.

Pierre Andurand is the official in one of the worlds largest funds specialising in oil. He busted up his fund’s last long positions in oil last week. He is now running a very reduced risk at the moment.

“It is now-or-never for oil bulls,” said U.S. commodity analysis firm The Schork Report. They either put up a defense here or risk further emboldening the bears for a run at the $40 threshold (for WTI).” (Reuters)

 

Brend And WTI Futures

Both Brent and WTI futures are down about 17 percent so far this year despite OPEC efforts to support prices. The benchmarks are trading around levels last seen before the joint deal to cut output was first announced.

“So far OPEC’s strategy to draw down inventories has not worked.” (Neil Beveridge)

” If their strategy is to have any chance of success.. It is evident to us that OPEC will need to keep the output cuts active way more than the next six months. ”

Adding to cares about protruding inventories, traders pointed to exalted U.S. oil output. It is up more than 10 percent since mid-2016 to 9.3 million bpd. Which makes it almost matching output of top producers Russia and Saudi Arabia.

“Any likelihood of an increase in the level of cuts remains slim with OPEC officials playing down this possibility.” said James Woods, global investment analyst at Rivkin Securities. (Reuters)

 

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Oil immerses, on U.S. stock decline

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Oil prices tumbled lower today, May 3. Right after the U.S. government data showed a smaller-than-expected decline in domestic crude inventories. There was also shown a weak demand for gasoline. And it is feeding bothers about a supply glut.

 

Oil Numbers & Data

Benchmark Brent crude LCOc1 was down 8 cents at $50.38 a barrel.

U.S. West Texas Intermediate (WTI) crude CLc1 was down 18 cents at $47.48 a barrel at 11:33 EST.

Weekly crude stocks fell by 930,000 barrels to 527.8 million. Which makes it less than half the 2.3 million-barrel draw that had been in forecast. (EIA)

“U.S. domestic production increased again, and continues its steady climb.” said John Kilduff. (Again Capital hedge fund partner in New York.)

Noteworthy, sharp drop in imports turned what would have been an increase in stocks into a small drawdown.

EIA data also showed gasoline stocks rose by 191,000 barrels, which was much less than the 1.3 million-barrel gain that had been forecast. However, gasoline demand slipped 2.7 percent over the last four weeks from the same period a year ago.

  • “This is continuing a trend since the beginning of the year in which sales have been lower and that is casting a shadow on the market and pressuring crude oil prices.” Andrew Lipow, president of Lipow Oil Associates in Houston. (Reuters)

While the market remains anchored on U.S. production, oil investors continue to watch.. And think whether producing countries have been complying with their 2016 deal to cut output around 1.8 million bpd by the middle of the year.

 

Russia’s position

 

Russia’s oil cut exceeds level demanded in OPEC-led pact. Under the deal, Russia promised to cut its average daily production gradually by 300,000 barrels to 10.947 million bpd. From the October level of 11.247 million bpd.

With global crude inventories still bulging, investors are now focused on whether OPEC and others will agree to extend the cuts to the second half of the year. This will most probably become true on May 25th.

Russia, contributing the largest production cut outside OPEC, said that as of May 1, it had curbed output by more than 300,000 bpd. Since hitting peak production in October.

Russia has achieved its reduction target a month ahead of schedule. OPEC production showed the group’s compliance had fallen slightly.

Alexander Novak, Russian Energy Minister has said he would meet managers of key Russian oil producer before the OPEC event. He wants them to discuss extending the cuts. That meeting has yet to take place.

Russia’s Deputy Prime Minister Arkady Dvorkovich refused to comment about this subject when asked today.

 

More Oil from East

 

  • “Although OPEC is expected to extend a self-imposed output cap by another six months, it would be a challenge convincing several non-OPEC members to join the endeavor.” Said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London. (Reuters)

According to some news by Reuters it is clear that there was more oil from Angola and higher UAE output than originally. Thought meant OPEC compliance with its production-cutting deal slipped to 90 percent in April. From a revised 92 percent in March. Certainly, there are a lot of manipulations happening in the Oil market. Will it come out stronger after the May 25… We will see.

 

 

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Global OIL market nears balance even as stocks go up

 

 

Global OIL Demand

In the beginning, after nearly three years of surplus production, global demand for oil is finaly close to run out. Non counting the growth in the overhang of unused crude oil.

International Energy Agency said that in March, oil stocks in OPEC fell by 17.2 million barrels per day. “Over the first three months of the year, stocks were up by 38.5 million barrels, or 425,000 barrels per day (bpd), after a large increase in January.”

Yet, OECD stocks fell by 8.1 million barrels in February. To 3.055 billion barrels as demand outpaced supply to the tune of around 200,000 bpd between January and March.

Stocks are still 330 million barrels above the five-year average.

Inconsistency Reasons

 

There are several possible explantions for the inconsistency. For example, demand is overstated or the supply is understated in the estimates. On the other hand, explanation lies with “less visible” stocks, inclouding stocks held at sea. That stocks held at the sea can be either in transit or for speculative reasons. And they can also be on land, but outside the OPEC countries.

“Indeed, a look at data from various sources shows stocks drawing in some non-OECD countries over (the first quarter of 2017). Non-OECD stocks are thought to be roughly equal in size to OECD volumes, but there is far less data available about them.” As the IEA info shows.

“The net result is that global stocks might have marginally increased in the first quarter, versus an implied draw of about 0.2 million barrels per day”

We have an interesting second half to come…

 

Global Level

 

Looking at the global level, oil held offshore fell to 58.4 million barrels in March. It started from 82.6 million barrels at the end of 2016. Iranian offshore stocks also fell to 4 million barrels in March. It has started from 28 million barrels when sanctions were lifted in early 2016.

“In other words, the full extent of the production cuts has not hit yet,” Bernstein said.

The price of oil LCOc1 has increased to around $56 a barrel. It went from a 13-year low of $27 hit in January last year, which has encouraged a raft of new supply.

For the second half of 2017, the IEA expects non-OPEC supply to rise by 485,000 bpd, above its previous estimate of 400,000 bpd. The one of main reasons would be led by increases in U.S. production growth.

Indeed, although the oil market will likely tighten throughout the year, overall non-OPEC production, not just in the U.S., will soon be on the rise again.

Oil market is a volatile, very interesting market to work on. Especially when it comes to predicting possible trends based on the geopolitical activities around the world.

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