Oil Price - June 15
Posted: Fri Jun 15, 2018 9:55 am
My take is that WTI will hover around $65/bbl until we get details from the OPEC meeting on June 22. My SWAG is that OPEC + Russian cannot raise oil production quickly and they will announce a gradual increase in production quotas. Ten of the OPEC cartel member countries are already producing at maximum rates and they will be against raising quotas. Saudi Arabia is the only country with significant remaining production capacity (maybe a million barrels per day). All of my forecast/valuation models assume that WTI will average $65/bbl for all future periods. My belief is that this is just a pause in a steady march to over $75/bbl by Q4 of this year. U.S. refiners have ramped up to over 95% utilization rate, so look for steady declines in U.S. crude oil inventory this summer. BTW this happens every year. The JULY NYMEX contract for natural gas is now trading over $3.00/MMBtu. < I told you so!- Dan
By Christopher Johnson
LONDON (Reuters) - Oil prices fell on Friday ahead of an OPEC meeting in Vienna next week as two of the world's biggest producers, Saudi Arabia and Russia, indicated they were prepared to increase output.
Benchmark Brent crude oil (LCOc1) fell by $1.07 a barrel to a low of $74.87 before recovering to $75.12, down 82 cents, by 1328 GMT. U.S. light crude (CLc1) was 360 cents lower at $66.53.
Both contracts hit 3-1/2-year highs in May, but have since drifted lower as U.S. crude production has risen and as the Organization of the Petroleum Exporting Countries, Russia and other allies look poised to increase output in their meeting in the Austrian capital on June 22-23.
Russian Energy Minister Alexander Novak said on Thursday after talks with Saudi Energy Minister Khalid al-Falih in Moscow that both nations "in principle" supported a gradual increase in production after restricting output for 18 months.
"We in general support this ... but specifics we will discuss with the ministers in a week," Novak said, adding that one option would involve gradually raising output by 1.5 million barrels per day (bpd), possibly starting from July 1.
Falih offered no specific guidance on what any deal in Vienna could look like, but said: "We will see where we go, but I think we'll come to an agreement that satisfies, most importantly, the market."
Many analysts expect a rise in output to be agreed.
"The switch has been turned on for a supply increase," Olivier Jakob at Swiss oil markets consultancy Petromatrix said.
Greg McKenna, chief market strategist at futures brokerage AxiTrader, said the shape of next week's OPEC deal was far from certain and noted that Russia seemed to want a bigger rise in production than some other producers: "My guess is the increase will be something less than the 1 million bpd (barrels per day) that the U.S. is supposed to have asked the Saudis for," McKenna said.
Saudi Crown Prince Mohammed bin Salman told Russian President Vladimir Putin on Thursday that Saudi Arabia wants to continue cooperation with Russia on global oil markets.
Oil prices found some support after attacks shut major Libyan oil ports on Thursday, slashing production by 240,000 bpd.
---------------------------------------------------
by Stuart Burns in London
After a sharp run up from the middle last year, the Brent oil price is hovering below U.S. $80 per barrel. The market is finely balanced in terms of threats to supply and still has robust demand growth.
Capacity cuts implemented by Russia, OPEC and a number of non-OPEC countries have successfully brought excess supply under control and reduced inventory. As a result, the oil price has risen with the expectation that the cartel will continue to restrict output into 2019.
So far, all significant producers appear on board with that position. The International Energy Agency (IEA) says the market is broadly balanced, with further price increases unlikely to be as significant as those of the previous 12 months.
The oil market still faces serious supply risks from the potential losses in Venezuela and Iran, the International Energy Agency (IEA) said in a new report, with only the U.S. continuing to add output. The IEA sees non-OPEC supply growing by 2 million barrels per day in 2018, followed by another jump of 1.7 million barrels per day in 2019, OilPrice.com reports; the U.S. makes up three- fourths of both of those figures, despite severe pipeline restrictions in Texas hampering development.
Growing U.S. output, though, is barely making up for declines in Venezuela, which the report describes as “catastrophic,” and potential loss of Iranian supply if sanctions are reimposed further (thus tightening the market).
So far, Russia and Saudi Arabia are not willing to increase output to dampen price rises. President Trump’s tweets this week about the oil price already being too high should be seen as an attempt to pressure OPEC to increase output to cap prices.
Interestingly, The New York Times sees the current failure of the oil price to break through $80 as evidence that the U.S., Russia and Saudi Arabia are already working behind the scenes to increase output and cap further rises. Whether that is true is unclear — judging by the president’s tweets, it’s probably not being done in any concerted or coordinated manner.
President Donald Trump’s comments over the oil price aren’t altruistic concern for consumers; rising oil prices have added to inflationary pressures in the U.S. The Wall Street Journal reports oil price rises have contributed to a number of factors forcing up consumer prices and encouraging the Fed to consider four rate hikes this year. Even though the WTI $10 discount to Brent leaves U.S. consumers at an advantage to the rest of the world, costs are still rising this year.
The president not unreasonably does not see any need for further oil price rises. While the demand market is growing, there is plenty of capacity to meet it if producers allow it; but for various reasons, OPEC is keen to see higher prices. For Saudi Arabia, it’s because of budget deficits and maximizing the value of the upcoming Aramco float. For most other OPEC members, it’s to make up state budgets requiring close on $100 per barrel to balance the books.
At under $80, there is clearly more incentive for producers to continue restrictions and push for higher prices. However, unexpected supply-side disruption excepted, the probability is they will be disappointed — at least in the short term — as prices show little inclination to drive higher.
By Christopher Johnson
LONDON (Reuters) - Oil prices fell on Friday ahead of an OPEC meeting in Vienna next week as two of the world's biggest producers, Saudi Arabia and Russia, indicated they were prepared to increase output.
Benchmark Brent crude oil (LCOc1) fell by $1.07 a barrel to a low of $74.87 before recovering to $75.12, down 82 cents, by 1328 GMT. U.S. light crude (CLc1) was 360 cents lower at $66.53.
Both contracts hit 3-1/2-year highs in May, but have since drifted lower as U.S. crude production has risen and as the Organization of the Petroleum Exporting Countries, Russia and other allies look poised to increase output in their meeting in the Austrian capital on June 22-23.
Russian Energy Minister Alexander Novak said on Thursday after talks with Saudi Energy Minister Khalid al-Falih in Moscow that both nations "in principle" supported a gradual increase in production after restricting output for 18 months.
"We in general support this ... but specifics we will discuss with the ministers in a week," Novak said, adding that one option would involve gradually raising output by 1.5 million barrels per day (bpd), possibly starting from July 1.
Falih offered no specific guidance on what any deal in Vienna could look like, but said: "We will see where we go, but I think we'll come to an agreement that satisfies, most importantly, the market."
Many analysts expect a rise in output to be agreed.
"The switch has been turned on for a supply increase," Olivier Jakob at Swiss oil markets consultancy Petromatrix said.
Greg McKenna, chief market strategist at futures brokerage AxiTrader, said the shape of next week's OPEC deal was far from certain and noted that Russia seemed to want a bigger rise in production than some other producers: "My guess is the increase will be something less than the 1 million bpd (barrels per day) that the U.S. is supposed to have asked the Saudis for," McKenna said.
Saudi Crown Prince Mohammed bin Salman told Russian President Vladimir Putin on Thursday that Saudi Arabia wants to continue cooperation with Russia on global oil markets.
Oil prices found some support after attacks shut major Libyan oil ports on Thursday, slashing production by 240,000 bpd.
---------------------------------------------------
by Stuart Burns in London
After a sharp run up from the middle last year, the Brent oil price is hovering below U.S. $80 per barrel. The market is finely balanced in terms of threats to supply and still has robust demand growth.
Capacity cuts implemented by Russia, OPEC and a number of non-OPEC countries have successfully brought excess supply under control and reduced inventory. As a result, the oil price has risen with the expectation that the cartel will continue to restrict output into 2019.
So far, all significant producers appear on board with that position. The International Energy Agency (IEA) says the market is broadly balanced, with further price increases unlikely to be as significant as those of the previous 12 months.
The oil market still faces serious supply risks from the potential losses in Venezuela and Iran, the International Energy Agency (IEA) said in a new report, with only the U.S. continuing to add output. The IEA sees non-OPEC supply growing by 2 million barrels per day in 2018, followed by another jump of 1.7 million barrels per day in 2019, OilPrice.com reports; the U.S. makes up three- fourths of both of those figures, despite severe pipeline restrictions in Texas hampering development.
Growing U.S. output, though, is barely making up for declines in Venezuela, which the report describes as “catastrophic,” and potential loss of Iranian supply if sanctions are reimposed further (thus tightening the market).
So far, Russia and Saudi Arabia are not willing to increase output to dampen price rises. President Trump’s tweets this week about the oil price already being too high should be seen as an attempt to pressure OPEC to increase output to cap prices.
Interestingly, The New York Times sees the current failure of the oil price to break through $80 as evidence that the U.S., Russia and Saudi Arabia are already working behind the scenes to increase output and cap further rises. Whether that is true is unclear — judging by the president’s tweets, it’s probably not being done in any concerted or coordinated manner.
President Donald Trump’s comments over the oil price aren’t altruistic concern for consumers; rising oil prices have added to inflationary pressures in the U.S. The Wall Street Journal reports oil price rises have contributed to a number of factors forcing up consumer prices and encouraging the Fed to consider four rate hikes this year. Even though the WTI $10 discount to Brent leaves U.S. consumers at an advantage to the rest of the world, costs are still rising this year.
The president not unreasonably does not see any need for further oil price rises. While the demand market is growing, there is plenty of capacity to meet it if producers allow it; but for various reasons, OPEC is keen to see higher prices. For Saudi Arabia, it’s because of budget deficits and maximizing the value of the upcoming Aramco float. For most other OPEC members, it’s to make up state budgets requiring close on $100 per barrel to balance the books.
At under $80, there is clearly more incentive for producers to continue restrictions and push for higher prices. However, unexpected supply-side disruption excepted, the probability is they will be disappointed — at least in the short term — as prices show little inclination to drive higher.