OPEC output keeps upward price pressure on, while PDVSA sanctions have little impact

Posted by Kelly Burke on Feb 13, 2019 3:44:43 PM

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Prices have been trending upward this week, largely based on OPEC following through on production cuts. Namely, we saw a drop in output of around 800K bpd in January by its member nations. This would seem to indicate that the so called "OPEC+ deal" to cut output and thus global oversupply is actually being followed, and it appears it is starting to have the desired effect - stabilizing prices higher than we have seen over the past year or so.

On the other hand, US domestic production continues to surge, which is holding off the major jumps in pricing we would expect to see on the OPEC move normally. 

This afternoon WTI settled out at $53.90 (from 52.41 Monday), ULSD closed up +.0316 to $1.9388, and RBOB jumped +.0379 to settle at $1.4651.

Assuming we see the existing dynamic continue to play out over global (OPEC) vs domestic (US) output, the main question on how widely pricing will swing in the next few weeks hinges on Venezuela.

The sanctions placed on state run PDVSA by the Trump administration are the type of political event that normally rocks the market, but so far in terms of benchmarking they have had little effect (on the NYMEX - that is not to say they have not or will not have a serious impact Venezuela/PDVSA, to be clear).

CNBC has a great piece today detailing the impacts the IEA expects to see from the sanctions, and why they don't see them having an outsized impact. You can read that piece here:  "Don't expect US sanctions against Venezuela to fuel a rally in oil prices, IEA says" 

Stay tuned! 

 

 

 

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Topics: PDVSA, Venezuela, OPEC, US Crude Production

Crude Poised to End 2018 Down 20%

Posted by Kelly Burke on Dec 28, 2018 1:37:29 PM

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As we head towards the end of 2018, it looks like oil prices will finish the year out down about 20%. We saw wildly fluctuating energy markets throughout the year, but the fundamental factors of supply and global economic growth concerns kept the downward pressure on pricing over the long term. 

Let's look back at what went on this year and what we are keeping an eye on going forward.

In 2018, the United States stepped to the forefront as the world’s largest producer of Crude oil, outpacing both Russia and Saudi Arabia.

Late in the year, Saudi Arabia and Russia, along with other OPEC and OPEC partner nations, agreed to production cuts starting in 2019, but Russia had a record production month in December, so time will tell if the unofficial deal bears out.

Worth remembering, is the US has no involvement in the supply curbing that is the so-called “OPEC+” deal. Historically, we have seen the Saudi’s reluctant to cut output long term for fear of losing market share.

This becomes even more relevant today than it was two years ago, as US output increases and the US becomes a net exporter for the first time in 70 years.

Essentially, the US has gone from an esoteric threat to market share to a very real one, and there is reason to believe that this may affect how the OPEC+ agreement is adhered to (or not) through 2019.

Another factor that can affect day to day swings on the NYMEX is the performance of the stock market. As we’re all aware through this year the market was hitting all new highs, then crashing, and generally bouncing around  (the analysts are writing off this weeks one day gains as a “suckers rally” – ouch!). Stocks obviously are impacted by both the at-large economy and the ramifications of political actions and their accompanying sentiments.

To put it politely, the US political arena right now is very... let's call it “exciting”, so it would probably be wise to anticipate an ongoing roller coaster with stocks – what we don’t know is how that could carry over on energy pricing in the long term.

The other ball in the air is the current Government shut down – prior shut downs were less than devastating in terms of any significant or lasting price impacts on energy – however, we wont know if that is the case with this one until it’s over. Right now there is know way of knowing how long the shutdown will last, obviously the longer it goes on, the more impact it has on federal employees, programs, and citizens. When it will end is anyone’s guess.

Lots to keep an eye on as we round into 2019. Have an awesome holiday, hope to see you all in the New Year!

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Topics: Market analysis, US Crude Production, OPEC

OPEC+ Production Agreement Spikes NYMEX

Posted by Kelly Burke on Dec 7, 2018 12:22:50 PM

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OPEC, as well as the so called "OPEC+" partners have reached a tentative agreement on production cuts, causing the oil market to spike Friday. The cuts reportedly amount to 800,000 bpd on OPEC's part, and an additional 400,000 bpd (combined) from allied nations, including Russia. No specific cuts by country were committed to, or at least they were not confirmed in statements. 

The agreement reached purportedly contains "special considerations" for Venezuela, Libya and Iran. These 3 nations have been up and down in terms of supply levels as a result of domestic turmoil, and their revenue concerns obviously differ from those of nations like Saudi Arabia, so concessions for their agreement presumably needed to be made to get the deal done. No word yet on precisely what those concessions are.  

This morning the market was up 5% on Brent Crude, and 4% on WTI shortly after the open. At time of writing,(noon) both RBOB and Diesel are up almost 7 cents. 

What's interesting about the spike today is that the tentatively agreed to cuts are right in line with what analysts expected to see (estimates were 1-1.5mmb, and the agreement came in at 1.2), which should have meant it was already "priced in" but Wednesday & Thursdays' markets don't bear out that assumption. 

Time will tell if this particular OPEC related jump is temporary & speculative, as they often are, or if the production cut agreement will have its intended goal of propping crude at desired benchmarks and holding up the increases going forward. 

Stay Tuned! 

 

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Topics: OPEC

OPEC Concerns Trump EIA Numbers to Drop Crude Prices

Posted by Kelly Burke on Nov 29, 2017 3:32:04 PM

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Oil was down today as the market weighed out OPEC speculation on one hand, and a drop in US Crude inventories on the other.

OPEC concerns seem to have won the day, given the drop in the face of an EIA report indicating a 3.4mmb drop (projections were 2.3mmb drop), some of which is presumably attributable to the Keystone pipeline leak & subsequent supply diversions.

Refined products showed builds of 2.7mmb on distillates, 3.6 mmb on gas. (projections were 230K and 1.3mmb, respectively).

OPEC is set to meet tommorow (Thursday) in Vienna to discuss extending production cuts through the end of 2018. 

The current deal keeps 1.8mmb/day off the global markets via production cuts, and is set to expire in March but a new agreement would extend it through December. The running assumption was that it would be a no brainer to extend, but surprise, surprise, a few days out from the meeting and Russia had not yet agreed on anything. Thoughts are they may argue for a shorter agreement or push for renegotiation closer to the March expiration.

What does this all mean?

The assumption in the market currently has been that the OPEC deal extension is essentially "priced in" already. What that means is that failing a 9 month extension, we could see the recent gains evaporate rather quickly and see crude prices dip, with WTI falling back at or below the $50 benchmark, or even lower than that if there is no deal at all. 

From OPEC/Russia's side of the aisle, an agreement on production cut extension to bolster pricing may be met with continued increase in US domestic production, which could both offset gains and damage their market share in the long view. That position is somewhat supported by rebounding US production levels & refinery utilization rates. 

Last week we saw WTI close out at a high of $58.02, but it has receeded over the past few sessions, closing today out at $57.30. ULSD & RBOB tumbled today as well, with ULSD dropping .0286 to 1.9221 and RBOB dropping .0411 to 1.7309. 

Stay tuned!

 

 

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Topics: NYMEX, EIA Inventories, CRUDE, OPEC

2017s Largest Rally Hits on OPEC & US Production Projections

Posted by Kelly Burke on Jul 25, 2017 3:45:14 PM

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Today saw oil prices have the biggest one day rally of 2017 thus far, with WTI Crude surging up 3.3% ($1.55) to settle out at $47.89/bbl. Likewise, refined products surged, with ULSD jumping over 5 cents (+.0516) to 1.5685, and gasoline jumped +.0394 to settle at 1.5962.

So whats going on?

On the global news front, at an OPEC gathering in Russia on Monday, Saudi Arabia pledged to cut Crude exports beginning in August, and Nigeria stated it will cap its production at 1.8 million barrels per day. (WTI closed out up 1.3% at $46.34 on the day Monday immediately following the news. ULSD settled up as well but by a mere 17 points to $1.5169, while gasoline dropped 65 points to close out at $1.5568.)

An important note pointed out by Market Watch regarding the OPEC news, however - its not unusual for the Saudis to drop exports this time of year, and the "cuts" promised by Nigeria are actually at levels higher than they are producing at the moment (they will cap at 1.8mmb and they are currently producing 1.6mmb) so its likely that this news was another somewhat nothing-to-it story out of OPEC that caused a (presumably temporary) jump on the NYMEX, as most OPEC meetings seem to do. 

Today was likely impacted more from domestic news and forecasts than the OPEC news of yesterday. Cuts are looming in the Oil & Gas sector in the U.S., which signals an oncoming slow down in domestic output. Anadarko, one the nations leading oil & gas exploration companies cut investment guidance by $300 million for 2017 after posting losses for the second quarter of over $415 million, or roughly twice estimates. Add this to Halliburton's forecasts for flat to declining rig counts, and projected crude draws on this weeks EIA reporting and you had the perfect storm in place for todays rally. 

 

 

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Topics: OPEC, anadarko, CRUDE

U.S. Inventory Projections Slow Today's NYMEX Losses

Posted by Kelly Burke on May 31, 2017 3:17:20 PM

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The oil markets were down sharply this morning on increasing cynicism that, essentially, global supply will not be driven down sufficiently by either OPEC or "non-cartel" producer production caps, or the summer driving season in the U.S. being upon us (despite the weather here in Boston, technically yes, its summer driving season). 

It would seem that the prior rally was a knee jerk reaction to what basically amounted to a baseless hope that somehow OPEC and other producers would be setting limits that actually addressed the ongoing supply glut, and therefore the lackluster pricing. It was unlikely that would be the case, given that the prior meetings we have seen, despite the hoopla, have also failed to address supply in a meaningful way. 

Despite promising to address the fundamentals involved, we've actually seen some ramp up in production on the part of Libya, Nigeria and Iran - none of which had any sort of ceiling placed on them at the recent gathering. 

We often talk about other countries production as being an unpredictable factor in global pricing & supply, however, it's worth noting that U.S. production has ramped back up substantially as well. Current production is around 9.3 million barrels a day (up over 6% from this time last year) and on the rise.Given this, it's not likely we will see OPEC seriously curb their levels, particularly the Saudi's, as the concern over U.S. encroachment on their market share has been inarguably a major driving factor in the current glut and its failure to resolve. Saudi Arabia has been beyond clear that they are prepared to hunker down and withstand whatever price declines are necessary for market share retention, particularly as concerns the U.S. At this point, it's pretty clear they are not bluffing about that. 

Anyhow - Today, unlike last Thursday's wild plunge,has pared losses as the day goes on, while investors factor in the near term projections on U.S. supply reports (due out tommorow, thanks to the holiday) versus the overall global supply picture.

Platts is projecting a draw down of 3.2 million barrels of crude on tommorow's reports, which would be the 8th week in a row, and definitely helped to stem the bleeding today on the NYMEX by close.

At the close we ended out with Crude at $48.32/bbl, July ULSD at 1.5179 (-.0356) and July Gas at 1.5965 (-0278). 

Stay tuned! 

 

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Topics: EIA Inventories, NYMEX, OPEC

Benchmarks & OPEC & Hurricanes, Oh My

Posted by Kelly Burke on Oct 6, 2016 4:33:46 PM

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Crude closed out today at over $50 ($50.44 to be exact) which is the highest close we've seen since June. ULSD closed up .0135 to $1.5958 and RBOB ended up .0050 at $1.4978.

This week the NYMEX has ticked up steadily on all products, holding firm since OPEC announced they had a tentative agreement in Algiers, despite said agreement not being formalized in any way.

Additionally, this weeks EIA inventory report indicated more product draws as well, which pumped prices almost 2% Wednesday. Analysts had projected builds, but the governments official reporting showed US Crude stockpiles dropped 3 million barrels versus the expected a 2.5 million barrel build forecast by industry projections. 

Despite OPEC chatter and EIA draws, its entirely possible we have already seen an outsized pricing build up on commodities, given that the global demand picture is not an overly rosy one, and supply is not in any way guaranteed to either stabilize or drop anytime in the near future - with or without an OPEC agreement. 

Today (and probably tommorow) whats trending in the news is Hurricane Matthew, which is roaring up the East Coast of Florida currently as a category 4 storm, and would be the strongest hurricane to make landfall in the US in about a decade if it should touch down at its current intensity.

We're hearing reports of local gas outages in the Southeast, as residents flee the coastal areas on the advice of Florida governmer Rick Scott and President Obama. However, given that as its currently tracking, Hurricane Matthew is East Coast centered, versus hitting the Gulf, national or regional supply outages are not anticipated. Obviously all of that could change essentially instantaneously however, and we will let you know what we do, as soon as we do, if there are new relevant developments.

 Stay tuned!

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Topics: OPEC, hurricane MAtthew, $50 benchmark

OPEC "Deal" and Inventory Draws Prop Up NYMEX

Posted by Kelly Burke on Sep 30, 2016 4:33:29 PM

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On Wednesday, OPEC countries made a surprise agreement to cap production at 32.5-33 million BPD at their meeting in Algiers (if you’re keeping score at home, current production is about 33.24mmb.. insert yawn here, in other words). This marked the first deal since 2008, largely on account of Saudi-Iranian tensions – more on that later. Oil spiked on the news before backing off slightly over the remainder of the week.

 

Wednesday saw Brent and WTI both surge up over 5% (5.9 and 5.3, respectively). Wednesday ended the day up across the board, with refined products ULSD and RBOB both up over 8 cents on the day (ULSD $1.4910; RBOB $1.4777) and WTI closed out at $47.05/bbl.

 

Analysts are projecting that the OPEC “deal” could add up to $10/bbl to the price of oil. However it is worth noting that there is a reason we put “deal” in quotes – as we have seen previously OPEC is not shy on talking up oil prices, but when it comes to an across the board agreement and even more importantly, ACTION, on said agreements, the jury is still out. Watch for the ongoing standoff slash game of chicken between the Iranians and the Saudi’s to likely cause this so called deal to amount to little more than a few days of upward trending on the screen versus actual, actionable changes to the fundamental supply glut we still find ourselves in.

 

Thursday saw prices continue to climb on distillates, although in a much less drastic fashion as bigger picture doubts about the OPEC deal set in – these were somewhat offset by another draw down in U.S. inventory levels, however, and as a result we saw ULSD gain $0.0192 to close out at $1.5102, RBOB dropped $0.0109 to close out at $1.4668, while Crude settled relatively flatly at $47.83.

 

The EIA report Thursday indicated a 1.9mmb draw down in commercial crude inventories, more than double the API’s projection of a 752K draw, and the fourth draw down in as many weeks. Distillates mirrored crude, also drawing down 1.9mmb, but gasoline saw a build of 2 million barrels to buck the trend.  The timing worked out well on the inventory draws as far as price stability is concerned, given that by the hour the hope for the OPEC agreement amounting to actual supply cuts fades.

Despite the clear incentive for Riyadh and Tehran to bolster their economies and Thursday’s announcement by the Saudis that they are willing to cap production, it’s almost unimaginable that Iran agrees to cuts post sanction lifting, as has been the case for the past several months.

 

Today we saw October trading expire (doesn’t seem possible!) and November trading kept products range bound with WTI closing out at $48.24, up against yesterday’s number. ULSD closed up as well, settling up $0.0281 for November trading at $1.5383, with gasoline again bucking the trend and settling down 37 points to $1.4631.

 

We ought to in theory see either movement on OPEC next week, or see the market shed the bump in pricing. Longer term, it will be interesting to see how things settle out over the next few weeks as we start heading towards the winter and heating oil season – hopefully a colder one than last year’s, at least up here in the Northeast.  

 

Stay Tuned!

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Topics: OPEC, EIA Inventories, wti

Dwindling OPEC Agreement Hopes Reverse Rally

Posted by Kelly Burke on Aug 30, 2016 4:00:34 PM

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August has been all over the place. Crude futures this month were up 23% in less than 3 weeks as of the 28th. We've bounced from an August 10th low of $41.71 to an August 19th a high of $48.52 -  and today we’re in the middle at $46.35.

So what’s going on?

Last week, optimism reigned. Longs were up and shorts were way down across the board on WTI, RBOB and U.S. ULSD. Citigroup and BOA/ML were saying the global glut is diminishing based on the narrowing Brent discount we were seeing. That was reflected in last week’s rally but we saw that rally reverse yesterday as hopes backed off on just how quickly we might see that supply glut fade.

So what caused the overabundance of hope in just how quickly the supply glut could fade?

Stop me if you’ve heard this one before: OPEC countries are set to meet September 26-28th in Algiers for “informal talks” in which the Saudis are reportedly “prepared to listen” to the input of the other OPEC nations in regards to agreeing on output caps to curb global oversupply. This drove the market higher on hopes of an agreement propping up pricing longer term, but hopes on any such agreement coming to fruition have begun to drop off.

Déjà vu all over again.

If you recall, the last OPEC meeting had a similarly framed narrative and a similarly bullish impact on the markets a few weeks out from the meeting before falling off, as it became clear that the conference would fail to produce a deal. There was no agreement on output cuts last go around largely because of Saudi insistence that Iran be a full participant in agreeing to output limits, which the newly un-sanctioned Iran obviously refused to agree to.  Given the dynamic there has not changed substantially it’s hard to imagine that a meaningful deal is reached this time either.  

That seems to be the conclusion that traders reached as well just like leading up to the prior meeting. Today saw Crude close out at $46.35, down marginally from Monday’s close but over a dollar down from Friday’s $47.64. (ULSD and RBOB followed suit, dropping -.0151 and -.0186 respectively for August trading)

What’s becoming interesting about the other dynamics involved in the OPEC meetings is Russia realistically needs an agreement sooner rather than later. While they are not in Venezuela style meltdown yet, a huge portion of their revenue depends on oil and the ongoing standoff with the Saudis on over production for market share retention will presumably hit breaking point at some time, as both Russia and Saudi Arabia hemorrhage money.

Meanwhile, it looks like long term the supply situation may correct itself, and largely courtesy of the Russia/Saudi standoff, somewhat ironically. Bloomberg is reporting that oil discoveries have plummeted to lows not seen in over half a century as a result of ongoing price depression that has halted new discoveries by severely curbing investment in drilling and exploration. This is especially notable in the U.S. where exploration is at multi year lows after the crash in prices from 2014 highs.

So although this OPEC meeting is unlikely to produce an agreement to cut supply and stabilize pricing this time, in an odd twist of fate, ultimately the ongoing standoff may push long term pricing up over time regardless of OPEC input.

Stay tuned!

 

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Topics: OPEC, WTI Crude, russia, saudi arabia, oil glut

OPEC & Inventories Close Out August NYMEX in Bearish Territory

Posted by Kelly Burke on Aug 1, 2016 3:45:26 PM

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After a strong start to the month of July post Brexit, markets settled down again today after closing out August's futures yesterday. 

Today's close saw Crude touching the $40/bbl mark at $40.06/bbl, this coming just a few weeks after it appeared we had essentially rebalanced and analysts were looking at Crude staying range bound $45-$50 bbl. Now we are, according to some analysts, looking at a $38 target.

The last week of July delivered a few knocks courtesy of Reuters who reported on 7/29 that OPEC had produced 100,000 additional barrels per day in July, the increases coming from Iraq and Nigeria. If you recall, Nigeria has been dealing with militia attacks on its oil refineries and recently hit 20-year lows on levels of export.

Incidentally, those Nigerian refinery attacks had pushed Crude to over $50 ($51.23 to be exact) in June, its highest since July 2015 - and now we are seeing Crude start to slide back to April lows after July 2016 saw a drop of over 15%. To put that in perspective, we are still up almost 50% from the low for this year in February but it does appear that once again the bears are in sell mode due to perceived oversupply.

(And keep in mind that "oversupply" is with a Nigeria that has not fully recovered capacity, and with domestic turmoil in Venezuela and Libya limiting their production as well. Essentially - the glut could get a lot worse, very quickly, depending on how the domestic situations play out in those 3 OPEC countries.) 

This summer saw seasonal gasoline stockpiles hit 25 year highs, which according to reports, caused refiners to begin blending winter grade gasoline early. Ironically, refiners made a similar decision in the face of lower winter demand and began blending summer gas early this year, and that is probably partially to blame for high inventories that plagued pricing this summer season. Also of note is that due to these inventory levels, forward market pricing for gasoline was not showing the usual slide that precedes the switch to winter blend gasoline (often of around 20 cents or thereabouts) we normally see starting to develop right around the end of July. 

At the end of the day, despite production disruptions in Canada and Nigeria, anticipated economic fallout from Brexit, more terrorist attacks, and dropping domestic production - supplies have gone from what looked like a rebalancing to oversupply once again. This has kicked the NYMEX back to the bearish side, which still sort of amazing when you think about how sharply a single one of the events just mentioned could have spiked the market prior to the US shale boom.

Stay tuned!

 

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Topics: Brexit, OPEC

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