Last week, oil prices underwent their biggest weekly decline in a month as the markets lost confidence in OPEC’s ability to reduce the global oil surplus in the near future. The move was supported by reports that a glut was developing in the physical oil market in the North Sea area as lower Asia purchases, increased shipments of US crude to the EU, and more supplies coming out of storage all served to drive down prices. At week’s end, US futures were once again trading below $50 a barrel and London’s Brent below $52.
Peak Oil Review
Last week started with a flurry of speculator optimism deriving from the World Energy Congress in Istanbul during which the Russians backed Saudi efforts to raise prices using a production freeze, the details of which have yet to be determined. For the rest of the week, oil prices moved little as various reports affecting the oil markets showed that it is unlikely that a significant OPEC/Russian production agreement can be negotiated. The week ended with New York futures settling at $50.35 and London at $51.95. Most analysts do not expect any significant change in prices until the fate of the freeze becomes known around the end of November. In the meantime, technical exchange meetings will take place to see if an agreement can be worked out. Recent and projected increases in OPEC production make it likely that considerably larger production cuts than were agreed to at Algiers will be necessary to move prices higher. Goldman Sachs warned last week that the planned Russian/OPEC production freeze is unlikely to be enough to rebalance the markets in 2017.
The rally that began with the announcement of the OPEC production freezes in late September continued through Thursday last week. There is much skepticism that the tentative agreement, which will not be signed for another six weeks, will have a significant impact on global oil supplies. Crude prices slipped on Friday settling at $49.81 in New York and $51.93 in London. The 10-day rally now has taken prices up by about $5 a barrel. OPEC and the Russians have figured out that just talking about supply cuts can increase oil revenues substantially. A $5 price jump increases OPEC’s revenues from pumping roughly 33 million b/d by some $160 million a day.
Oil prices continued to fall last week, closing Friday in New York at $43.39 and $46 in London. There was considerable news tending to push prices lower. OPEC and the IEA revised their forecasts for the next year and concluded that the imbalance in the oil markets would continue into 2017 vs. predictions that the gap would close this fall. This coupled with increased Iranian production; the possibility that Libya and Nigeria oil production will soon rebound; the report that Bakken shale oil production grew in July and EIA’s admission that US oil production is not falling as rapidly as forecast; all contributed to the weaker oil markets.
It was a volatile week, with New York futures starting out at around $43 a barrel on Monday, climbing to $47.50 on Thursday and then falling to close at $45.88 on Friday. The major event last week was the EIA status report, which came out on Thursday, reporting a near-record fall in the US crude stocks of 14.5 million barrels from the week before last. This was the largest weekly drop in 17 years and set off a short-lived buying frenzy. Traders ignored the impact of tropical storm Hermine which was thrashing around in the Gulf that week, closing production platforms and delaying tanker arrivals along the Gulf and East Coasts. The EIA reported that US crude imports were down by 12.6 million barrels from the week before, and that US refineries were running at 93.7 percent of capacity to satisfy US gasoline consumption demand over Labor Day. By Friday, traders realized that the crude drop was likely a one-off event and not the beginning of a trend.
The struggle between fundamentals and speculators’ dreams of much higher prices continued last week with oil futures falling through Thursday and then rebounding on Friday to close at $44.44 in NY and $46.83 in London, down about $2.50 for the week. The fundamentals include growing stockpiles, increasing US and Canadian rig counts, and fears that US interest rates will be going up shortly which will lead to a stronger dollar and lower oil prices.
Oil futures fell some 3 percent in New York and 2 percent in London last week, settling at $47.64 and $49.92 respectively. The markets have become volatile of late with traders reacting to nearly every API or EIA report and every utterance from the Saudi or Iranian oil ministers. Last week the markets were pressured by numerous comments pro and con the possibility of an oil production freeze next month; a jump in Chinese diesel exports; comments by Federal Reserve Chair Janet Yellen that there could be a price-depressing rate increase sooner-rather-than-later; increased exports from Iraq via Kurdistan; the possibility of a ceasefire in Nigeria; sluggish US and Chinese economies; and a jump in US crude and oil product inventories.
Oil prices climbed another $3 a barrel last week as traders continued to hope that not only will OPEC and Russia agree to a production freeze next month, but that it will eventually result in the elimination of global oversupply and reduce global stockpiles to a normal level. The week closes with New York futures at $48.52 and London at $50.88.
Oil prices climbed a bit on Monday, fell on Tuesday and Wednesday, and then surged upwards on Thursday and Friday after the Saudi energy minister said his country would be willing to discuss rebalancing the oil market. The minister said Saudi Arabia would “take any action to help” the crude market and will discuss the issue at a meeting in Septmber. Coupled with an EIA forecast that foresees a “sustained tightening” of the crude markets and a reduction in product stocks, New York futures prices now have climbed from below $40 a barrel early in the month to a close of $44.49 on Friday. The IEA says that a combination of falling production and increasing demand, which will be up by 1.4 million b/d in 2016, means that there will be no oversupply in the second half of this year. The Agency believes that refinery processing of crude is now down about 500,000 b/d year over year and projects that production in North and South America alone will be down by 700,000 b/d in the third quarter.
Oil prices fell steadily during July as the realities of oversupply trumped traders’ hopes that there would be balanced markets and higher prices later this year. July opened with London trading just below $51 a barrel and New York around $49.50. By month’s end, London was down to $42.71 and New York to $40.74. The month’s trading was dominated by reports of increasing oil product inventories and higher OPEC production. The decline of nearly $10 a barrel naturally has had repercussions across the oil industry. For most of July, the US rig count was growing as drillers anticipated that crude prices would soon be at a level where more wells would be profitable. By month’s end, however, these hopes had been dashed, and the US oil rig count had nearly stopped growing.
Concerns are rising that the predictions of the oil markets coming back into balance later this year are wrong and that lower oil prices are ahead. Oil production is not falling as fast as predicted. Some outages are coming to a close and the growing glut of oil products could be as bad as last year’s crude glut. Many analysts now are talking about prices falling below $40 in the next few months and a few are even talking about a return to the $30 level. Although US crude stocks have been falling of late, the growth in the inventories of refined products continues to grow. Europe is running out of storage space for refined products which would force a cut in refining and result in lower demand for crude. Increased refining to support the summer driving season in the US has only another few weeks to run before the increased demand for gasoline comes to an end. The US oil rig count was up for the 6th time in 7 weeks and North Dakota reported that its oil production increased slightly in May.
Futures fell about $4 a barrel during the holiday-shortened US trading week closing at $45.41 in New York and $46.44 in London. Prices edged down early in the week, recovered a bit on Wednesday, and the plunged after the EIA reported that the US crude inventory had dropped by only 2.2 million barrels as opposed to the 6.7-million-barrel drop that the API came up with after their weekly survey. The weekly decline for Brent was the largest since January.
The oil markets remained volatile last week, trading around $48-50 a barrel, amidst much uncertainty about the future of crude prices. In the wake of the Brexit vote, analysts are all over the board as to where prices will be by the end of the year. Some are talking about $85 a barrel while others are looking for a retreat to less than $30 again. Nearly all agree that the markets will “rebalance” with supply and demand coming together as demand increases and the supply continues to drop as the impact of the much lower investment levels during the last two years reduces supply. For the next six months, however, there is uncertainty especially concerning the spate of unplanned outages that have taken place in the past few months. Oil worker strikes such as in France and Norway likely will be settled quickly, and Alberta tar sands production will soon be back to normal by the end of the summer. The outages in Libya, Nigeria, and Venezuela, however, are more uncertain and seem to be getting worse rather than better in the immediate future.
The vote in Britain to pull out of the EU came as a surprise as most observers were expecting the referendum would fail. Oil prices fell immediately and after some gyrations settled down about $2.50 a barrel at $47.64 in New York and $47.54 in London.
The ramifications of the British vote for the oil markets will take years to work out, and many believe it will lead to a series of international realignments with other countries pulling out of the EU and possibly even the secession of Scotland and Northern Ireland from the UK. Conventional wisdom currently holds that Britain’s withdrawal from the EU will lead to lower economic growth in the EU, UK, and possibly other countries.
Oil prices dropped for six straight trading sessions before rebounding on Friday to close at $47.98 in New York and $49.17 in London but both markets were down for the week. Trading was dominated by polls showing that Britain may vote to leave the EU this week sparking financial turmoil and slower economic growth. These fears resulted in a stronger US dollar which in turn drove oil prices lower. Running counter to these pressures were an IEA forecast that the global supply/demand would be back in balance by the end of the year; production outages in Libya, Canada, and Nigeria; and concerns that the deteriorating situation in Venezuela could soon limit oil production and exports.
Oil prices remained firm last week amidst continuing reports concerning actual or impending supply disruptions. US futures dipped below $50 a barrel on Friday, to close at $49.83, but analysts are expecting further gains as the impact of more disruptions are felt. Higher oil prices have encouraged a small revival of drilling activity with the US rig count up slightly for the second week in a row.
Oil prices hovered just below the $50 level last week with Brent closing just above $50 on Thursday before settling at $49.46 on Friday. As has been the case lately, there were numerous factors pressuring oil prices one way or another. The week opened with much enthusiasm that OPEC would agree to a production freeze, but this went away when the OPEC meeting failed to take any action. The major factor pushing prices higher last week was the unplanned production outages in Alberta, Nigeria, and Venezuela. Although the fires are now well past the Alberta tar sands, it will be several weeks before the 1 million b/d of production that had to be shut down during the firestorms can return fully to production. In the meantime, the Alberta outage and the one in Nigeria have likely removed much or all of the production surplus that has overhung the markets and for now, there may be a rough balance of supply and demand.
Oil briefly traded above $50 a barrel last week but quickly fell back to close at $49.33 in NY and $49.32 in London on profit taking and uncertainties about the status of the global oil glut. For the past two months, oil prices have been driven higher by a series of unplanned production outages in Kuwait, Libya, Canada, Nigeria, and concerns about the political stability of Venezuela. Currently, about 3.5 million b/d of normal production is offline. While some of these outages, such as the 1 million b/d fire-caused drop in tar sands production, will be short-lived, other situations such as in Nigeria, Libya, and Nigeria could last indefinitely.
Last week began on a bullish tone with oil prices climbing to a seven-month high, Goldman Sachs talking about the end of the oil glut, and columnists predicting a new spike in prices. All this optimism was based on solid Chinese oil imports, strong US gasoline demand, and production outages in Alberta, Nigeria, Libya and Venezuela. As the week moved on, however, the market became less optimistic as US, European, and Asian crude stocks continued to rise, and prices failed to break through the $50 a barrel barrier.
Oil prices continued to climb last week with New York futures closing up 3.5 percent, the tenth weekly increase in the past 13 and closing Friday at $46.21. Similarly, London prices were up 5.4 percent to close at $47.83. Forces that move the oil markets keep coming in and out of existence. Hopes that the major exporters would agree to freeze production have now faded, to be replaced by unexpected production outages in several countries as the principal force driving prices higher.
Last week saw volatile oil prices and unexpected developments that could have major consequences for the oil industry. The week started on a bearish tone with prices pulling back from weeks of steady increases. As the week wore on several unanticipated oil production outages occurred sending prices higher. At week’s end, however, both US and Brent crude were lower, the first weekly loss after four straight weeks of gains with New York futures at $44.66 a barrel and London at $43.37.
Analysts are starting to wonder as whether 2016 could turn out to be similar to 2015 when oil prices rose sharply in the first five months of the year on hopes that the oil surplus would soon be over, and then collapsed in May when it became apparent that there was going to be more oil around than necessary. Last week the price surge which began in February continued throughThursday and then slowed on Friday leaving London futures at $48.13 at the close and New York at $45.92. The impetus for the surge is that that hedge funds and other speculators are convinced that the two-year price slump is over and that higher prices are ahead. This forecast is supported by the steady decline in the US rig count, which continued last week; a continuing drop in US crude production which the EIA projects will continue into next year; a weaker dollar due to the Federal Reserve’s failure to increase interest rates; increased consumption of gasoline in the US due to low prices; market technical analysis showing prices breaking various “ceilings;” and news of a string of production outages across the globe due to insurgencies and unsettled economic conditions.
Market sentiment has switched to the opinion that prices are not going much lower, despite warnings from Goldman Sachs and other respected observers that there is no fundamental support for higher prices at this time. Last week various pieces of slightly bullish news that are usually are ignored by the markets were enough to move prices higher for the eighth time in the last ten weeks. Crude now is up 67 percent since February, closing on Friday at $43.73 in New York and $45.11 in London.
Oil prices climbed to recent highs early last week on hopes that the Doha meeting would eventually lead to some sort of production cut, a weaker dollar, and scattered production problems. Later in the week prices fell as the US crude glut continued to grow and expectations that something meaningful would come from the Doha meeting subsided. At week’s end, New York oil was at $40.36 and London at $43.10 up 2.8 percent for the week.
Oil prices surged 8 percent last Friday and are now back at levels seen at the top of the last price surge in mid-March. This time strengthening the US and German economies, a falling dollar, and the OPEC price freeze meeting on April 17th was seen as the trigger behind the rally. Friday’s rally was the 12th time in the last two months that daily prices have surged by 5 percent or more showing that there is a lot of money eager to participate in big price rise that will come someday. However, this rally was mostly based on hopes that things are going to get better rather than any specific news, other than the recent increases in US gasoline consumption which are likely to short-lived as retail prices move higher.
The six-week long surge in oil prices which pushed the price of crude up by roughly 50 percent seems to be coming to an end with prices down 6 percent last week. Looming behind the price increase was the notion that the world’s major crude exporters would to get together and sign an agreement to freeze production at current levels. Supporting the price jump was an increase in US gasoline consumption as prices fell to levels not seen in decades and the never ending hope that the US economy was about to get better. Much of the surge was caused by the liquidation of the unprecedented short futures positions that hedge funds and other speculators had built up during the nearly two-year slide of oil prices. When oil fell below $30 a barrel, many speculators figured that the long price slide was over and that oil was unlikely to go much lower. The resulting liquidation of positions which pushed up prices was the largest on record.