Crude Oil Slides Ahead Of Inventories

Glen Norman
May 3, 2018

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At 10:28 am Singapore time (0228 GMT), July ICE Brent crude futures fell 16 cents/b (0.22%) from Wednesday's settle to $73.20/b.

"When we first looked at these [OPEC] cuts, back in 2016 and into 2017, the cartel basically maintained their cuts for the year".

Oil pumps are seen at sunset outside Vaudoy-en-Brie, near Paris, France April 23, 2018.

China has become the world's largest oil importer, and despite establishing the largely successful yuan-denominated oil futures, Beijing will have to grapple with an overlooked geopolitical and economic outcome as it seeks to quench its thirst for oil and gas. OPEC countries, and some non-OPEC countries, including Russian Federation, agreed to reduce crude oil production through the end of 2018, which allowed other countries to capture Chinese market share in 2017. That figure would rise to 500,000 to 1 million per day through 2019.

Draining the USA of supply while adding barrels to the global market will likely cause WTI and Brent prices to converge as the discrepancy between the two markets dissipates.

From 2011-2015 when the European Union and United States had levied sanctions on the transportation and purchase of Iranian crude, Iran saw its exports fall by nearly 1 million b/d.

Earlier in the session, the market shrugged off a surprise build in U.S. crude inventories because the move was largely concentrated on the U.S. West Coast.

The balance between production, consumption and inventories is intimately connected with the shape of the oil futures curve. Is what he is saying - the price of oil rather high at the moment in terms of production availability?

USA producers are being incentivised to ramp up production as OPEC restricts production and raises prices.

"If Trump abandons the deal, he risks a spike in global oil prices", said Ole Hansen, head of commodity strategy at Saxo Bank, adding that reintroducing us sanctions could remove 300,000-500,000 bpd of Iranian oil from global supplies.

Geopolitics could well derail oil's bull run; there is a very real possibility that President Trump may effectively kill the Joint Comprehensive Plan of Action (JCPOA) on Iran's nuclear program by May 12. Experts say the oil market is particularly sensitive to any developments on the nuclear deal and sanctions.

See also points to how Venezuela continues "to be in political, economic and social chaos, with the new government installed in that country".

According to CNN, bringing back sanctions on Iran could knock out as much as 1 million barrels per day of crude supply, dealing a "blow to increasingly fragile energy markets".

That has removed supply from the market, he says, and supports current pricing trends.

Global oil price benchmark Brent is now trading close to $70/bbl (monthly) which was last seen in November 2014 just after the oil price crash due to USA shale surge. So whether the price is too high or too low that's basically up to the market to decide we've seen them both higher and significantly lower than what we are now.

"We've added that in significant weight to the portfolios, and underweighted other investments such as mid-stream companies, which are more defensive entities", he adds.

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