Crude eases early Thu after API reports US stock-build - 15 Nov 2018

  • Crude futures resumed their journey downhill early Thursday in Asia after notching modest gains in the West the previous day, pressured by another sizeable weekly build in US crude inventories reported by the American Petroleum Association.
  • Analysts had expected to see an increase in commercial crude stocks in the US for the week ended November 9, but not as big as the 8.8 million barrels reported by API.
  • Crude, which has been incessantly battered for the past fortnight amid expectations of oversupply in 2019, found support in Wednesday’s session from the prospect of another OPEC production cut.

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Oil Viewsletter

Crude's freefall sets the stage for another OPEC about-turn - 9 Nov 2018

  • In less than six weeks after hitting four-year highs, crude has plummeted into bear territory.
  • A trifecta of factors – abundant and rising oil supply, escalating demand growth fears, and relief on account of US waivers from Iran sanctions – have overwhelmed the crude market.
  • Brent had slipped below the $70 key psychological mark during intraday trading Friday, while WTI had breached $60.
  • We believe the latest freefall is a clear signal to OPEC to make another about-turn, restraining production just six months after pledging additional barrels.
  • The OPEC/non-OPEC ministerial monitoring committee meets in Abu Dhabi this weekend to review the market and will make a recommendation on supply policy to the full ministerial meeting scheduled in Vienna on December 6.
  • The committee is co-chaired by Saudi Arabia and Russia, the de facto leaders of OPEC and its non-OPEC collaborators. Discussions over a renewed supply restraint will likely be high on the agenda.
  • Thanks to the 1 million b/d hike agreed in June, Iran’s exceptional situation under the US sanctions, and members such as Venezuela simply unable to meet their output allocation, a formal reduction may prove complicated and cumbersome to structure. The path of least resistance would be for Saudi Arabia and some of its Arab peers to voluntarily rein in production, with Russian assurance that it will do the same.

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Bulls reined in - 16 Oct 2018

  • Concerns over the health of global oil demand have re-emerged, with the IMF last week revising down its global economic outlook forecast for both 2018 and 2019.
  • The International Energy Agency as well as OPEC last week lowered their global oil demand growth estimates for 2018 and 2019.
  • For now, the downward revisions and jitters in the financial markets since the week of October 8 are weighing on crude purely from a sentiment perspective. In the coming months, if macro-economic and oil demand data validate the forecasts, we could see a further downward pressure on oil prices.
  • Supply appears to be adequate for now. OPEC-15 plus Russia have delivered on their 1 million b/d production hike promised in June. OECD inventories rose in July as well as August, according to the latest monthly reports of IEA and OPEC.
  • All the above bearish factors notwithstanding, the looming US sanctions against Iran and an unarguably thinning spare capacity cushion with the world’s producers are keeping the fear premium in crude intact. That is likely to limit any downward momentum in crude prices for the time being.

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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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