Crude Oil/Macro

[dan_s]

From John White at Roth Capital on Monday, February 29:

OPEC has so far surprised the market by showing record compliance with oil output curbs and could do so further in coming months as the biggest laggards, the United Arab Emirates and Iraq, pledge to catch up quickly with their targets, as reported by Reuters on Friday, 2/24/2017. "The UAE is fully committed to the OPEC cuts and is undertaking the necessary measures that will ensure it is fully compliant over the six month period with the OPEC agreement," the UAE's OPEC governor, Ahmed Al Kaabi, told Reuters in a statement.

Iraq's OPEC peers are privately urging Baghdad to make further reductions, sources say, and there are indications compliance may at least not worsen, Reuters added.

Oilfield maintenance could also help to push compliance higher. Abu Dhabi National Oil Co has work planned at fields producing Murban and Das light crude in March and May, people familiar with the matter said.

Hedge funds and money managers boosted their bullish positions on U.S. crude oil to a record high, data showed on Friday, 2/24/2017, as prices rallied on OPEC's optimism for greater compliance with its deal with other top global producers to curb output, Reuters reported. The group raised its combined futures and options position in two major NYMEX and ICE markets by 21,777 contracts to 443,703, the U.S. Commodity Futures Trading Commission (CFTC) data showed. Gross short, or bearish, futures and options positions among money managers fell to the lowest since mid-2014. That brought the net long U.S. crude futures and options positions to the highest on record, based on publicly available data going back to at least 2009, the CFTC said on Friday.

Saudi Aramco has selected JPMorgan Chase & Co, Morgan Stanley, and HSBC Holdings Plc as lead underwriters for its planned initial public share offering, the Wall Street Journal reported on Tuesday, 2/22/2017 citing people familiar with the matter. Saudi authorities are aiming to list up to 5% of the world's largest oil producer on both the Saudi stock exchange in Riyadh, the Tadawul, and on one or more international markets.

On 2/22/2017, Reuters reported that the U.S. should expect a "strong slap in the face" if it underestimates Iran's defensive capabilities, a commander of the elite Revolutionary Guards said on Wednesday, as Tehran concluded war games. Since taking office last month, U.S. President Donald Trump has pledged to get tough with Iran, warning the Islamic Republic after its recent ballistic missile test that it was playing with fire and all U.S. options were on the table. "The enemy should not be mistaken in its assessments, and it will receive a strong slap in the face if it does make such a mistake," said General Mohammad Pakpour, head of the Guards’ ground forces, quoted by the Guards' website Sepahnews. On Wednesday, the Revolutionary Guards concluded three days of exercises with rockets, artillery, tanks and helicopters.

John M. White
Senior Research Analyst
Roth Capital

[dan_s]

Outside of OPEC and the United States oil production will be flat to down.

"The widespread delays and cancellations of long-lead-time oil projects during the commodity down cycle have created a slow period for upcoming project startups, with 2017 below 2016 levels, followed by a cyclical trough in 2018. With smaller amounts of production capacity coming online, non-OPEC ex-U.S. supply is likely to be declining (or, at best, flattish). While startups should pick back up in 2019, the picture for 2020 and beyond remains hazy, reflecting uncertainty over not just the pace of project approvals but also construction timetables." - Raymond James Energy Stat dated 2/27/2017

If demand for hydrocarbon based liquid fuels continues to increase by 1.5 million barrels per day each year (the current IEA and EIA forecast), it is going to be a very tight global oil market by the end of 2018.