Inventories & Rumored OPEC+ Cuts Boost Oil Prices

Posted by Kelly Burke on Dec 4, 2019 3:50:58 PM

markets_pic

Markets shot up today after relative calm earlier in the week, on EIA inventory reporting this morning that showed a 4.9mmb drop in Crude, once again far surpassing analyst predictions.

This week's report marks the first time in 6 weeks that US Crude inventories have showed declines.

At the close, WTI settled at $58.43, ULSD was up .0430 to $1.9229, and RBOB was up .0413 to $1.6042. 

In terms of larger ongoing issues affecting markets, the OPEC meeting is still looming (this Thursday & Friday). Analysts expect that the OPEC+ agreement will both be extended and strengthened as a result of the upcoming meeting, and they expect deeper cuts going forward to be the main outcome of the meeting (rumor is cuts will be an additional 400K bpd).

However, there has been some drama recently with Saudi Arabia and other member nations over adherence to production caps.

Basically, Saudi Arabia has kept production well below their agreed upon level in order to offset the overproduction by non compliant producers (Iraq being chief offender - they over pumped by around a quarter million barrels per day). As a result of that, Saudi Arabia is essentially subsidizing and taking the financial hit for other countries over production in order to keep global pricing levels stable. 

Understandably, they are a little tired of doing so and last week threatened to unilaterally boost their own production and send the whole pricing house of cards tumbling if other nations don't step up their compliance rates. Its likely an empty threat - even though they're taking a hit covering for the other nations, they also stand to lose the most (by a LONG shot) if prices were to crash now. The threat is meant to keep other producers in line, but who knows what will happen if they don't. We will have to see how the meetings go at the end of this week. 

Stay Tuned! 

 

Read More

Topics: OPEC, EIA Inventories

Mixed Market Week on Same Old Concerns

Posted by Kelly Burke on Nov 22, 2019 3:27:27 PM

energy-market-updates-banner

Happy Friday!

We are ending out a mixed week on the NYMEX today, to put it mildly. Monday & Tuesday were both substantial down days with the market shedding over 4 cents (.0433 and .0473, respectively) on ULSD both days, and landing Crude at $55.21 at Tuesday's close. 

Wednesday & Thursday however, saw the NYMEX jump up substantially.

Wednesday's inventory numbers fell short of expected builds and we saw intraday highs over 5 on refined products, with the close reflecting +.0347 on ULSD ($1.8921) and +.0526 on RBOB ($1.6563) and Crude closed at $57.11. 

Thursday gains were around 2% with ULSD closing up +.0526 to $1.9447, RBOB +.0481 to $1.7044 and Crude up to $58.58, a two month high. 

Today we saw the market shed some of the week's earlier gains, with ULSD down -.0153 to $1.9294, RBOB off -.0301 to $1.6743 and Crude closed out at $57.77, about back where it was Wednesday mid-morning. 

So what's going on? Good question. It seems a lot of the back-and-forth action this week (and for a few weeks prior) has primarily been the result of ongoing speculation and reaction on three repeating themes 1) China-US Trade War 2) OPEC Cut questions 3) Global economic concerns.

Essentially we have been bouncing up or down based on reaction to inventory reporting, economic reports, rumors of progress then retreat on ongoing China-US discussions, tariff delay questions, and uneasiness about what OPEC may or may not announce regarding cuts at their December 5th meeting. 

Hopefully there is some solid direction on any of these questions over the next few weeks, or it's anyone's guess when the see-saw action will subside. Until then, it's Deja Vu all over again, as they say. 

Stay tuned!

Read More

Topics: OPEC, NYMEX, EIA Inventories, china, tariff

Supply vs. Demand Concerns Temper Early Gains

Posted by Kelly Burke on Nov 14, 2019 3:27:29 PM

energy-market-updates-banner

The markets were initially up somewhat today on EIA inventory reporting and projected slowdowns in US Shale production through 2020.

However, ongoing positive hopes regarding a trade deal between China and the US, as well as some unexpectedly positive demand numbers from China allayed some concerns on the demand side of the equation and prevented supply related spiking on the NYMEX today, and we ended up closing down on Crude & RBOB, and up slightly on ULSD. 

Official numbers at the close: Crude $56.77 (from $57.12), ULSD $1.9179 (+.0054) and RBOB $1.6158 (-.0207)

On the OPEC front, no "major changes" are anticipated on current supply curbing measures and member adherence. There is some question though if going forward there will be further cuts to prop prices, which seems important both for Aramco valuation and to compensate for continually dwindling demand. On the other hand, the ongoing concerns for the cartel regarding the portion of demand loss that has been taken by non-OPEC producers, including the US, makes further supply cuts anything but a sure thing.

As we've discussed, OPEC nations, particularly the Saudi's have the lowest oil production costs globally, so while they can withstand "cheap" oil, producers of Shale who are looking at both higher production costs and high overhead and financing debt on newer exploration projects cannot. Thus far, obviously, the multi-year campaign to push higher cost producers out has not worked - and some analysts think that should OPEC decide to pursue further cuts to prop pricing, (rather than continuing to ride it out), it could signal an acceptance of this fact and potentially signal a major shift in their approach going forward.  

The next meeting is scheduled for December 5-6. The way the news has been going, it's probably a good assumption that we will see enough volatility from other issues that it will sneak up on us again. 

Either way, stay tuned! 

Read More

Topics: OPEC, EIA Inventories, shale, US Crude Production

EIA Data drops prices, but OPEC cuts loom ahead of Aramco IPO

Posted by Kelly Burke on Nov 6, 2019 3:27:17 PM

shutterstock_187711847

The NYMEX was down across the board today, with Crude settling at $56.35 (from $57.23), ULSD dropping .0288 to settle at $1.9278, and Gas shedding .0484 to close out at $1.6262.

We've been up and down on the markets recently with the news doing a tug-of-war around trade tensions, global supply fundamentals, and demand/economic outlook concerns.

Today's drop, however, we can attribute to a pretty straightforward factor - huge builds in supply on this morning's EIA report. 

This week's EIA data showed an increase of a whopping 7.9 mmb in Crude supplies, almost triple the number (2.7mmb) analysts had predicted. This is the second week in a row that analysts pegged a build of around 2.5/2.7mmb and the actuals dwarfed the estimates, which explains much of today's quick drop (no one had it "priced in"). 

Gasoline & Distillate inventories both showed draws, but came in relatively close to analyst predictions, with actuals showing 2.8mmb on gasoline (2.4mmb predicted) and 600,000bbl on distillates (versus 1mmb predicted). Gas & Diesel have had unseasonably high demand as of late so draw downs are actually a positive sign in that regard.  

So supply is up more than anticipated, and there are still concerns regarding global demand & economic growth... but before deciding that means prices will stay depressed, its important to note that OPEC is again discussing further supply cuts across the board, despite the ever present concern regarding US Shale production.

Word on the street is that Saudi Arabia has been pressuring producers in their region to agree on further cuts in an effort to boost market valuation of the Aramco IPO. (High valuation on the IPO may make risking a resurgence in shale production in the US worth it, when it otherwise would not be).

It's unclear if and when the cuts could take effect, but its definitely something that could impact near term pricing and is worth keeping an eye on. 

Stay tuned! 

Read More

Topics: OPEC, EIA Inventories

Talk of Easing Iran Sanctions Trumps Crude Draws

Posted by Kelly Burke on Sep 11, 2019 3:36:58 PM

shutterstock_1099946876

After starting the morning up on the EIA inventory reports of large crude draws (-6.9 mmb), the NYMEX dropped later through today's trading, as more information about the firing of US National Security Advisor John Bolton came to light, and as global demand growth estimates were revised downward yet again. 

The reason an Advisor firing is at all relevant to the oil markets is: Iran.

There was speculation immediately that Bolton's firing was a good sign for US-Iranian relations, and as details emerge it seems that speculation was not only accurate, but an undersell.

Bloomberg is reporting that the Administration discussed easing sanctions in order to broker meetings with Iranian President Rhouhani and kickstart negotiations. Evidently the support voiced for doing so led to a blowout of sorts that prompted the firing. 

Prices dropped almost instantaneously on the news that sanctions could potentially be eased on Iran. 

Additionally, today OPEC's estimates for global growth demand were revised downward (but worth noting is that the revision puts their estimates in line with those of other analysts and economists already existent predictions). The EIA numbers were revised slightly down yesterday as well (down 100,000 bpd from the August prediction to 900,000 bpd).

Overall it appears that for at least today's session, the current market of OPEC cuts and US domestic crude draws did not outweigh longer term concerns about a potential future supply glut in the face of low growth demand. 

At the close, Crude settled at $55.75/bbl, ULSD shed .0280 to close at $1.9032, and RBOB dropped .0209 to close at $1.5699

We'll have to see what happens tomorrow. 

 

Read More

Topics: Iran Sanctions, OPEC, EIA Inventories

Today's Market = John Bolton Firing vs OPEC Cuts

Posted by Kelly Burke on Sep 10, 2019 3:22:00 PM

shutterstock_651733465

This past Friday, ahead of the scheduled OPEC meeting this week, Saudi Arabia abruptly announced a new Energy Minister, Prince Adbulaziz. The move sparked momentary concern that this was a signal the Saudi's would be reversing course on the OPEC+ production cut agreement, but it appears they are actually doubling down.

The kingdom announced they would be adhering to and encouraging the production cuts going forward, and Russian officials announced that they fully anticipated continuing the current trajectory with the new leadership. 

This consensus initially let prices continue their several day climb, with WTI hitting a 6 week high momentarily ... BUT!

But this afternoon, the Trump Administration announced the firing of US National Security Advisor John Bolton.

Bolton was extremely vocal regarding his hardline stance against Iran, and his "resignation" may be a positive signal for future progress on peace talks with Iran, and in the near term, may be a good move to de-escalate the current situation, a lot of which has impacted the oil industry via threats to tankers & the threat to block the Strait of Hormuz. 

Prices have backed off intraday highs following the Bolton announcement. Essentially any hint of resolution with Iran, while positive, also renews concerns about Iranian supply flooding the market, and that is pushing down on pricing (despite the prematurity of any concern). 

Time will tell how the interplay between production cuts and lingering supply concerns levels out, particularly depending on inventory reporting (which we should see tomorrow) and domestic production.

For today, at the close, we ended essentially flat. ULSD +.0035 to $1.9312, RBOB +.0062 to $1.5908

Stay Tuned! 

 

Read More

Topics: Iran, OPEC, russia, WTI Crude

NYMEX Plunges on Fed Rates, Supply, Tariff Tweets

Posted by Kelly Burke on Aug 1, 2019 2:58:38 PM

shutterstock_238169278

Oil & Refined products all plunged today on a series of events. Both Brent & WTI were down over 3% this morning, and by 2pm refined products were down over 11 cents.

At the close, ULSD was down .1178 to $1.8529, RBOB shed .1129 to close at $1.7499, and WTI Crude was $53.95, down from $58.58 at the close yesterday.

Yikes.

So here's what appears to be going on in a very basic nutshell:

The Federal Reserve announced a single rate cut of 0.25% versus the series of cuts expected to be coming down the road. The interest rate cut was expected to begin a series of cuts to shore up the domestic economy against global economic concerns about general weakness but evidently will be a one shot deal. 

The dollar hit two year highs post Fed announcement, and oil crashed as a result. 

U.S. supplies were down for July and OPEC production hit record lows (below 2011 levels) as a result of the OPEC+ deal, which normally would serve to boost prices, or at least hold them steady. However, global supply & output levels are still very high, particularly from the United States, and additional influxes from former member nations who opted out of the OPEC+ production cut agreements. (When combined, that's an offset of around 12mmb per day against the cuts by OPEC countries) 

Finally, this afternoon, the Trump Administration announced abruptly that effective September 1, the US would impose a 10% tariff on an additional $300 billion dollars of Chinese goods. Not exactly helpful for allaying concerns about global trade, the global economy, or weakening demand, to put it mildly.

The announcement came out later in the day, so we will have to see how the markets shake out tomorrow - whether the demand concern seeming to dominate now holds out, or if we flip the markets the other way on overall economic concerns tariffs can raise. 

As always, stay tuned & feel free to reach out if you have questions. 

Read More

Topics: OPEC, FED rates, tariff

Inventories & Gulf Storm threat push NYMEX higher

Posted by Kelly Burke on Jul 10, 2019 2:54:12 PM

shutterstock_146565659

Crude slipped past the looming $60/bbl benchmark this afternoon, as pricing surged over $2/bbl (~4%). Prices have been largely supported the past several weeks by looming Iranian-US tensions and price level support from the continuing OPEC+ production cuts.

Today's surge was the result of the perfect storm of, well, an actual storm, and unexpectedly high Crude inventory draws announced by the EIA. 

This morning several major oil producers announced they were beginning evacuations of rigs and halting areas of production along the Gulf of Mexico ahead of an impending tropical storm expected Thursday into Friday. (According to CNBC, who has a fantastic piece being continually updated with info on everything happening in the Gulf & the market impacts that you can read here: CNBC )

The EIA Inventory report this morning showed Crude draws of 9.5mmb, well above the anticipated levels (expectations were that draws would be around the 3mmb range, so they came in at over triple expectations, essentially). Gasoline drew down 1.5mmb, and distillates showed builds of 3.7mmb. Those distillate builds did little to slow the across the board impacts this afternoon, and refined products closed up right along side Crude. 

At the close, Crude closed out at 60.43, ULSD was up +.0804 to $1.9910 and gas settled up +.0783 to $2.0052

 

Read More

Topics: OPEC, Crude draws, EIA Inventories

OPEC vs "NOPEC" Drama Pushes NYMEX Up

Posted by Kelly Burke on Apr 5, 2019 4:57:46 PM

markets_pic

The NYMEX was up today across the board, with Crude closing out at $63.08/bbl, comfortably above that $60 benchmark, and refined products both edged up almost 3 cents, with ULSD closing at 2.0424 (+.0290) and RBOB settling at 1.9687 (+.0288).

So what's going on?

March Oil production from OPEC on preliminary reporting is down 570k barrels per day, primarily driven by drops from Saudi Arabia and Venezuela.

Domestically, rig counts are up, suggesting some level of confidence in prices stabilizing or continuing to increase on the part of producers. Crude production levels are still up overall as well.

Another factor coming back into play this week was the so called “NOPEC” (“No Oil Producing Cartels”) bill in the US that aims to hold OPEC nations potentially liable for what are considered “cartel-like” practices. Currently (and historically) there is no real legal recourse against things like so-called market fixing and this bill aims to change that in terms of establishing liability.

The reason we care about this bill popping up again is that rumor has it the Saudis are responding to the prospect of the bill being pushed through by threatening to drop the dollar as the currency basis for their oil trading.

This might sound familiar because the same thing happened a few years ago. Threats over currency changes and essentially market flooding by the kingdom led to prices crashing (back when we ended out at $30/bbl, from the $100 ish its hard to remember being used to), which drove a substantial number of US based producers out of business (particularly those highly leveraged on shale plays). At the time, the Saudis essentially had enough cash in hand to allow the prices to bottom in order to retain market share and production dominance, where anything under $50-60 a barrel was unsustainable for US companies. 

 So long story short, the threat to replace the dollar is the threat to wreak havoc on the US economy via crashing the market. (One would hope the irony of that being your response to being called a cartel would register)

A point to remember is that at the end of the day, despite production level increases, the US is still a marginal producer, not a swing producer like OPEC, so production is almost fully determined by market price levels. And the dollar being removed as the basis for trading could seriously impact those price levels.

 So at least for today, we closed up on all the drama, but also the fundamentals.

 Time will tell if we hang around the $60 benchmark, or continue to move upward and a substantial portion of which way we go will depend on continuing production cuts globally, and what happens on currency basis changes.

 Stay tuned!

 

Read More

Topics: OPEC, NYMEX, saudi arabia, US Crude Production

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

shutterstock_187711847

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! 

 

 

 

Read More

Topics: OPEC, US Crude Production, Venezuela, PDVSA

Recent Posts

Posts by Topic

see all