Oil Macro View
Posted: Sat Feb 04, 2017 12:20 pm
From my friends at OilPrice.com
Friday, February 3, 2017
Oil prices posted some modest gains this week, despite some small up and down movements. OPEC compliance continues to look good, but oil inventories are also rising in the U.S., raising fears of ongoing supply problems. Oil volatility has declined in recent weeks, but it is far from clear which direction it will move in over the next several weeks and months.
OPEC has high compliance rate. Oil markets were buoyed this week by further evidence that OPEC is more or less complying with the production cuts that it promised a few months ago. A Reuters survey put the cuts so far at 1 million barrels per day. Bloomberg mostly agrees, estimating that the cartel cut output by 840,000 bpd so far. In other words, by all accounts, OPEC has achieved a roughly 80 percent compliance rate with its promised cuts. Given the strong skepticism surrounding the deal, the news is bullish for oil. “Compliance is great -- it’s been really fantastic,” Saudi Energy minister Khalid Al-Falih said recently. “Based on everything I know, I think it’s been one of the best agreements we’ve had for a long time.”
U.S.-Iran tensions heating up. The Trump administration is moving to impose new sanctions on Iranian entities after Iran tested a ballistic missile. The move comes after the administration said that they were “putting Iran on notice,” a vaguely worded threat that has undone years of improving relations. Iran has said that new sanctions would breach the 2015 nuclear accord; the U.S. insists they do not. The latest flare up in tensions upends a two-year détente between the U.S. and Iran and put the two countries back on a path of confrontation. Iran has succeeded in ramping up oil production after international sanctions were lifted a year ago, but the sudden resurgence in tensions could push up prices if things escalate. The geopolitical battle with Iran had enormous influence a few years ago, and this could be one of the major black swan events of 2017.
FWIW from IEA: oil prices probably not going to $65. "I think 63, 65 (dollars a barrel for Brent) I think you might be a little bit ambitious there because the OPEC producers have got this basic issue, they don't want the price to go too low clearly, because their economies wouldn't stand it," Neil Atkinson, head of the oil industry and markets division, at the IEA told CNBC. "But if the price goes too high then that's going to attract a lot of investment in other parts of the world, principally the U.S. shale producers.”
Friday, February 3, 2017
Oil prices posted some modest gains this week, despite some small up and down movements. OPEC compliance continues to look good, but oil inventories are also rising in the U.S., raising fears of ongoing supply problems. Oil volatility has declined in recent weeks, but it is far from clear which direction it will move in over the next several weeks and months.
OPEC has high compliance rate. Oil markets were buoyed this week by further evidence that OPEC is more or less complying with the production cuts that it promised a few months ago. A Reuters survey put the cuts so far at 1 million barrels per day. Bloomberg mostly agrees, estimating that the cartel cut output by 840,000 bpd so far. In other words, by all accounts, OPEC has achieved a roughly 80 percent compliance rate with its promised cuts. Given the strong skepticism surrounding the deal, the news is bullish for oil. “Compliance is great -- it’s been really fantastic,” Saudi Energy minister Khalid Al-Falih said recently. “Based on everything I know, I think it’s been one of the best agreements we’ve had for a long time.”
U.S.-Iran tensions heating up. The Trump administration is moving to impose new sanctions on Iranian entities after Iran tested a ballistic missile. The move comes after the administration said that they were “putting Iran on notice,” a vaguely worded threat that has undone years of improving relations. Iran has said that new sanctions would breach the 2015 nuclear accord; the U.S. insists they do not. The latest flare up in tensions upends a two-year détente between the U.S. and Iran and put the two countries back on a path of confrontation. Iran has succeeded in ramping up oil production after international sanctions were lifted a year ago, but the sudden resurgence in tensions could push up prices if things escalate. The geopolitical battle with Iran had enormous influence a few years ago, and this could be one of the major black swan events of 2017.
FWIW from IEA: oil prices probably not going to $65. "I think 63, 65 (dollars a barrel for Brent) I think you might be a little bit ambitious there because the OPEC producers have got this basic issue, they don't want the price to go too low clearly, because their economies wouldn't stand it," Neil Atkinson, head of the oil industry and markets division, at the IEA told CNBC. "But if the price goes too high then that's going to attract a lot of investment in other parts of the world, principally the U.S. shale producers.”