Crude range-bound around 4-month high settle early Thu - 21 Mar 2019

  • Crude futures were trading in a tight range around Wednesday’s fresh four-month high settle early Thursday in Asia, with occasional dips into the red on some profit-taking.
  • Regional equity indexes had mostly opened in the green, buoyed by the US Federal Reserve’s announcement on Wednesday that it would hold benchmark interest rates steady for the rest of 2019.
  • Brent and WTI futures closed at a fresh four-month high on Wednesday after the US Energy Information Administration reported a whopping 9.6-million-barrel decline in domestic commercial crude inventories for the week ended March 15.

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Oil Viewsletter

Crude rallies to four-month high but lacks staying power - 15 Mar 2019

  • Tightening supply fundamentals are starting to take centre-stage in the oil market, and briefly sent crude to a four-month high this week. But just as Brent crossed $68 during intraday trading and market watchers began to wonder if it was going to breach $70, the benchmark slipped back a few notches.
  • Crude’s jagged ascent has become a feature since the start of this year, making every upward surge feel tentative. The selling pressure that seized the crude market in the fourth quarter of last year is not yet done. Every rally seems to have plenty of skeptics waiting to sell into it.
  • Aside from OPEC’s output curbs, which surpassed 100% compliance in February, production from at least two producers not bound by quotas is under threat. Crude output in Venezuela, crippled by a major power outage for more than a week now, has plummeted, while the US says it wants to force Iranian crude exports to below 1 million b/d when the current batch of sanctions waivers expire at the start of May.
  • A US-China trade deal continues to look certain, even though the signing may be pushed back to April. However, economic worries elsewhere continue to weigh on oil market sentiment and demand growth expectations.
  • OPEC appears determined to stay the course with its production cuts in conjunction with its non-OPEC allies. But it sees non-OPEC supply growth this year dwarfing demand growth by nearly 1.1 million b/d, and is feeling the burden of rebalancing the market once again on its shoulders.  

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Crude rallies, but checked by economic worries - 20 Mar 2019

  • Our latest Bulls & Bears report notes that tightening crude supply has gradually elbowed out broader bearish financial market concerns that were dominating oil market sentiment since the fourth quarter of 2018, and has prompted a 25% rally in Brent since the start of this year.
  • OPEC production cuts are off to a strong start and reached full compliance in February, while fresh threats hang over Venezuelan and Iranian supply, both thanks to US sanctions.
  • However, global economic headwinds are still blowing, keeping crude’s rally in check. The positive impact of an expected US-China trade agreement has been largely priced into crude over recent weeks. Finally, OPEC and its de facto leader Saudi Arabia are prone to come under pressure from Trump’s Twitter admonitions if crude extends its rally much beyond current levels.
  • Over the medium term, we see Brent in the $60-70/bbl range.

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Oil in the time of "Super OPEC" - Q4 2018

  • Starting next year, OPEC’s 15-member organization is planning to become turbo-charged. A permanent alliance with Russia and nine other non-OPEC oil producers will aim to pro-actively maintain global supply-demand balance.
  • A new “charter” of cooperation between OPEC and its non-OPEC collaborators will bring together 25 countries that collectively account for around 51 million b/d of production, over half the world’s current oil supply.
  • How strong and how different can the institutionalized collaboration be? Will it repeat the mistakes of the past or be future-proof? Will a “Super OPEC” be able to emerge from the shadow of doubt, disapproval, skepticism and consumer ire that hangs over OPEC, or is it doomed to fail?
  • In this quarter’s issue of Energy Radar, we examine the circumstances leading up to the upcoming inflection point for OPEC and share our view of what might lie ahead.

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