Oil Price - October 20

[dan_s]

From OilPrice.com: Oil & Energy Insider

Friday, October 20, 2017

Oil seems to have found a relative bottom after the declines over the past few weeks, with WTI firming up at the $50-per-barrel level. Tension in the Middle East, combined with growing confidence in the likelihood of an OPEC extension, has very few analysts seeing a lot of downside risk. “The oil market is tightening gradually,” Tamas Varga, analyst at brokerage PVM Oil Associates, told Reuters. “OPEC is expected to roll over output restrictions for another nine months, supplies are at risk in the Middle East and U.S. inventories are falling.” Still, prices showed some weakness on Thursday and Friday, and benchmark prices are set to post a loss on the week. Without some major bullish or bearish catalysts, prices could bounce around for the next few trading sessions.

“Fragile Five” remain a supply risk. Geopolitics are back at the forefront of market concern after years of irrelevance. Citi said that five key oil producers – all OPEC members – should be on everyone’s mind. “The ‘Fragile Five’ petrostates - Iran, Iraq, Libya, Nigeria and Venezuela - continue to see supply disruption potential, with northern Iraq crude exports at risk due to an escalation of tensions between the (Kurdistan Regional Government), Baghdad and Turkey, while the United States has decertified the 2015 Iran nuclear deal,” Citi concluded.

Shale band prevents price rise to $60. The so-called “shale band” continues to cap oil prices at the $60-per-barrel ceiling, according to oil analysts. Any move above that threshold is widely seen as a likely catalyst for more shale production. This is why even the serious tension in the Middle East can't seem to push Brent above $60. “The market is frightened by the shale oil band,” Olivier Jakob at PetroMatrix, who helped coin the term “shale band,” told the FT. “But it’s not just traders — we’ve seen indications from OPEC and Russian oil companies that even they think going above $60 a barrel right now would be too much and would bring on more oil from shale. They don’t want it.”
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All of my forecast/valuation models assume WTI will average $50/bbl in 2018, but I can now see a good chance that WTI will move to $60 in Q1 2018. The refiners are ramping back up as hurricane related repairs and turnaround maintenance projects are wrapping up. They will be drawing a lot of crude oil from inventory as they need to work on rebuilding distillates inventories. Heating oil season is just a few weeks away. - Dan