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CRUDE IN SIGHT

Crude sideways early Fri, awaiting word from Jeddah - 20 Apr 2018

  • Crude futures were hovering close to their Thursday’s settle early Friday in Asia, as the market awaited news from a meeting of the Joint OPEC/non-OPEC Ministerial Monitoring Committee in Jeddah, Saudi Arabia, expected in a few hours’ time.
  • The JMMC, which comprises three OPEC members — Algeria, Kuwait and Venezuela — and non-OPEC members Oman and Russia, is primarily responsible for taking stock of the producers’ compliance with their commitments under the November 2016 production cut agreement. The committee, represented by the energy ministers of its member countries, met six times through 2017. The meeting in Jeddah is its second this year.
  • The Jeddah meeting has acquired special significance in view of the following recent developments:
  1. Crude futures have climbed to a fresh 40-month peak, with Brent supported well above $70/barrel. At the time of their November 2016 output cut deal, ministers had said they saw crude in a $60-70/barrel band as reasonable for both producers and consumers.
  2. The surplus of OECD oil inventories to their five-year average had shrunk to 30 million barrels at the end of February as per the International Energy Agency and 50 million barrels as per OPEC, according to their latest monthly market reports released last week. That has brought the target of the OPEC/non-OPEC cuts within sight.
  3. OECD oil stocks could return to their five-year average levels — the official target of the OPEC/non-OPEC cuts — before mid-year.
  4. OPEC and its non-OPEC partners will now need to decide whether they should amend their OECD inventory target (there have been some discussions around changing it to a seven-year average, which would mean continued draining of inventories) as well as weigh the possible impact of continuing with their cuts to the end of 2018, as currently scheduled.
 

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ARCHIVES

Oil Viewsletter

Crude saved from being jettisoned in Jeddah - 20 Apr 2018

  • Oil prices were on a tear this week, riding a wave of strong supply-demand fundamentals and lingering geopolitical fears. All that the handful of OPEC and non-OPEC ministers gathering in the Saudi coastal city of Jeddah had to do was get out of the way, which they did.
  • Front-month ICE Brent futures scaled a new 40-month peak to settle at $73.78 Thursday, while WTI had notched a high of $68.47 the previous day. Even the sour benchmark, Dubai, which trades at a discount to sweet crude, finished the week above the $70 psychological level, for the first time since 2014.
  • Shortly after oil bulls took cheer from the absence of any dovish signals from the six-member OPEC/non-OPEC Joint Ministerial Monitoring Committee meeting in Jeddah Friday, US President Donald Trump threw a wet blanket on them. “With record amounts of oil all over the place”, OPEC was keeping prices “artificially high”, he tweeted, adding that it “will not be accepted.”
  • Irrespective of whether crude settles higher or lower on the day Friday, the Trump dampener is likely to be transitory, with fundamentals soon returning to the driver’s seat in oil.
  • Plus: US gasoline demand steers oil bulls into the fast lane; Permian boon becomes WTI Midland bane.
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BULLS & BEARS

Overall outlook mildly bullish - week of 19-23 March 2018

  • Concerns over the fate of the Iran nuclear deal are injecting a fear premium in crude, as the US hardens its stance against the Islamic Republic.
  • Another weekly build expected in US crude stocks, lingering fears in the financial markets and a slightly stronger dollar are likely to weigh on crude prices.

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ENERGY RADAR

Price rally is sticking but hinges on OPEC/non-OPEC discipline - January 2017

  • With global oil demand growth likely to be tepid again in 2017, the much-awaited market rebalancing hinges on suppliers honouring their commitment to cut.
  • OPEC is not only seeking resurrection, but will be making history if it manages to actually balance crude in the target $50-60/barrel range.
  • US shale patch activity and rig counts picked up through the second half of 2016, but does this mean tight oil production is poised for a rebound?
  • Downside risk to demand growth: Consensus estimates for a 1.35 million b/d rise in global oil consumption this year might be overshooting.
  • A double whammy from rising crude prices and a stronger US dollar to emerging economies could dent demand growth in major consumers such as China, India.

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