It likely will take several weeks to assess the impact that Hurricane Harvey will have on the US oil industry. As of Monday morning, the storm is still dumping large amounts of rain on Houston and its refineries. Weather forecasts are predicting that the storm will continue to cause heavy flooding along the Gulf Coast and will move further east, possibly closing or damaging additional oil production facilities in Louisiana.
Oil continues to trade in one of the narrowest ranges seen in the last decade as the efficacy of the OPEC production cap weighs against increasing US and other production increases and slowing Chinese demand. Last week saw oil prices falling for three days and then rebounding sharply on Friday to close at $48.50 in New York as a combination of a large drop in US crude stocks, a weaker US dollar, and a falling rig count supported prices.
It has been two weeks of mixed signals as to the course of oil prices. Last week prices fell around 1.5 percent, closing at $48.82 in New York on concerns that the OPEC/NOPEC collation was not following through on its pledge to cap production. Even though US stocks continue to fall, much of this is due to increasing exports of light oils and finished oil products and not to increased domestic demand. On Friday, the IEA said that although the oil markets were slowly balancing, it is not going quickly. OPEC and other friends of higher oil prices continue to release optimistic reports, but the consensus seems to be that oil prices will stay around their current levels for the rest of the year unless there is a major geopolitical upheaval.
Oil prices were strong last week with New York futures closing about $4 a barrel higher for the week at $49.71 and London at $52.52. Behind the move was another unexpectedly large decline in US stockpiles of 7.2 million barrels. This decline was brought about by a high level of US refinery consumption of almost 17.3 million b/d of crude the week before last. This was 620,000 b/d higher than in the comparable week in 2016. A reduction in Saudi shipments to the US was also seen as responsible for the unusually large decline in inventories.
The markets remain confused about the future of oil prices as analysts attempt to interpret alternating bullish and bearish signals. Last week prices rose on Tuesday and Wednesday while falling on Monday, Thursday, and Friday leaving US futures at $45.77 or about $1 below where they started the week. With the US now exporting circa 1 million barrels of oil each day and imports up only about 300,000 b/d over last year, US stocks have been falling of late. There has been some increase in US consumption, but a rapid rise in US oil product exports is clouding the picture as to whether the high levels of US refinery output are being consumed domestically or being shipped abroad.
Oil prices climbed steadily last week, ending up Friday about $5 a barrel higher in New York at $46.54 with London the usual $2.50 or so higher. Although market concerns about oversupply have not gone away, a 7.6-million-barrel decline in US crude stocks and better demand from Europe and China was enough to keep the markets climbing higher. Rising prices were kept in check, however, by the continuing increases in oil production in the US, Canada, Libya and Nigeria. There are also concerns that adherence to the OPEC production cut is slipping and many traders are losing confidence in OPEC’s ability to balance the markets with the current level of effort.
Last Monday, oil prices rose for the eighth consecutive session closing in New York at $47 a barrel and setting a record for the longest gaining streak in nearly eight years. This surge came on speculator concerns that increases in US shale oil production were starting to slow. The rest of the week was mostly downhill with NY futures closing at $44.23. The slide came among reports that OPEC was not interested in further price cuts; a resumption of the increase in the US oil-rig count of seven rigs, adding to the run of 23 weeks of steady gains before the count fell by one the week before last; US crude production and exports continuing to gain; and OPEC exports increasing by 220,000 b/d in June to 32.49 million b/d.
After a decline of nearly $10 a barrel since mid-May, oil prices rebounded sharply last week with New York futures climbing from below $43 to close at $46 a barrel. Although many are still worried about excess oil inventories, most traders are optimistic that the worst is over and that higher oil prices stemming from the OPEC production cut are ahead. Many see the recent surge in US shale oil production slowing due to oil prices being in the $40s.
Oil prices continued to slide last week with Brent falling below $45 on Thursday and WTI falling below $43. Prices have now dropped by more than 20 percent since the start of the year, and Brent crude will likely post its worst first half since 1997. As normal of late, prices fell on increasing production in the US, Canada, Nigeria and Libya with little solid indication that the OPEC/NOPEC consortium is yet willing to make further production cuts. While the sharp production gains in Libya and Nigeria are recoveries from geopolitical production outages, some are forecasting that the surge in US shale oil production could run on into 2018 provided oil prices remain high enough to support additional growth.
In the last month, US oil prices have fallen from close to $52 a barrel to below $45. Partly due to the large exports of US crude which have been around 1 million b/d in recent weeks, London prices have been running only about $2 a barrel higher than the US. Last week a report from the IEA predicting that the oil glut would continue into 2018 or beyond, combined with an unexpected jump in US commercial petroleum stocks, to push oil prices down by $2 a barrel to touch a low of $44.50 on Thursday before a slight recovery on Friday.
During the past month, there have been several important developments which could have a major impact on the course of oil prices and production in the next few years. First was the OPEC/NOPEC decision to extend the current 1.8 million b/d production cut for another 18 months despite increasing evidence that increasing US shale oil output and rebounding Libyan and Nigerian production are offsetting the production cut. Because of the timid nature of the OPEC decision, increasing stockpiles and higher oil production, the price of crude has fallen some 11-12 percent in the last three weeks leaving US futures below $46 and Brent below $48 a barrel.
The price slump which began in early April continued last week with NY futures falling below $46 a barrel on Thursday, down from nearly $54 last month. Behind the move are fundamentals saying that a combination of higher US crude production and rebounding Libyan output are offsetting the 1.8 million b/d OPEC/NOPEC production cut. In the past week, several oil ministers supporting the production cut have issued reassuring statements as to how well the cut is being observed; that the cut likely to be extended until the end of the year; and that the 3rd quarter will see substantial progress in easing the oil glut. Outside analysts continue to say that deeper cuts and extending on into 2018 will be necessary to offset booming production in countries not subject to the cut.
Oil prices fell again last week on concerns that the OPEC production cut will not be enough to offset increasing US shale oil production. The reopening of two Libyan oilfields which could bring Libyan production back to the vicinity of 700,000 b/d added to the pressure on oil prices. At week’s close, New York futures were below $50 a barrel with London a couple of dollars higher, both down about 8 percent from their April peak of $54-$55 a barrel.
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.
After climbing steadily since March 27th, oil prices stabilized at the $53-55 level late last week. As usual, prices got a boost from various oil minister’s comments about how well they were doing in meeting their production cut goals and how they are considering extending the cuts until the end of the year. The monthly OPEC report shows that the cartel’s production jumped by about 1.2 million b/d after production cuts were first seriously discussed last fall, and then fell about the same amount after cuts started in January. The net result was to leave OPEC’s production about where it was through most of 2016.
After falling on Monday on the news that Libya was resuming production from its largest oilfield that was shut down the previous week, oil prices moved higher for the next three days on hopes that the OPEC production cut was having the desired effect. Some believe that oil traders have been too busy watching the well-publicized build in US crude stocks, while excess inventories in other parts of the world are shrinking away unnoticed. Futures prices, which were about $48 a barrel the US the week before last, climbed to over $51 a barrel by Thursday.
Crude prices rebounded sharply last week erasing nearly half the $7-8 selloff that began in early March. The March price drop came on the consensus that increasing crude inventories and ever higher rig counts would offset the 1.8 million production cut that OPEC was trying to orchestrate. At the close Friday, New York futures were at $50.85, and London was at $53.83.
Last week oil prices fell for the third time in a month, closing in New York at just below $48 a barrel. Increasing US crude inventories remain the chief motivation for the price drop as many traders now see higher US production as largely offsetting the OPEC/NOPEC production cuts. OPEC and its allies met in Kuwait last week to consider the situation and to talk about extending the cuts until the end of the year. In the meantime, the US rig count continues to grow amid some doubts as to whether all the new drilling will result in a concomitant amount of production.
After a quick drop of $3-4 a barrel the week before last, oil prices steadied last week as the markets contemplated just how effective the OPEC/NOPEC production freeze will be in the short term. Speculators had enthusiastically embraced the production freeze when it was announced late last year and drove open interest in futures to record highs. The cuts, however, did not come fast enough or be deep enough to offset increasing oil production from other countries and lower demand. As one important trader put it, “The OPEC cuts were good enough to prevent a repeat of the glut of last year, but it’s a different story if you want to have oil at $60 or $70.” For now, the physical oil market continues to indicate an oversupply situation.
Last week was the most active in many months as oil prices, widely believed to be stuck in a narrow trading range for the foreseeable future, plunged some 8 percent in the last three days of trading. The price decline was triggered by an unexpected build of 8.2 million barrels in US crude stocks along with growing concern about increases in the US oil rig count. The week was highlighted by the annual “CERAWeek” conference in Houston which was attended by oil ministers and CEOs of oil companies from around the world. Many took advantage of the meeting to express opinions or issue warnings about where the global oil industry was headed.
On Thursday last week NY oil prices fell to near the bottom of the $52.50-$54.50 trading range they have been stuck in since early January. On Friday a falling dollar pushed prices higher to close at $53.33 in New York and $55.22 in London. There was much discussion last week about the status of OPEC’s production cuts and how they were being achieved. Much of the cut seems to be coming from the Saudis whose production was down by 90,000 b/d during February to 9.78 million. Overall OPEC production, however, only fell by 65,000 b/d during February. Ecuador, Venezuela, Angola, the UAE, and Iraq are still well below their targets under the production cut agreement. The Saudis finished February with a production cut of 157 percent of their target which was enough to bring all of OPEC close to its goal. The non-OPEC exporters participating in the cuts seemed to have implemented around 66 percent of their targeted cut.
Oil prices moved to the top of their trading range last week as many traders believe prices are about to move higher. Even though the EIA reported that US oil stocks rose the week before last by 600,000 barrels to an all-time high of 518 million barrels, some traders are saying that we have reached the end of the buildup in US crude stocks which has been going on for the last two months. A drop in US crude imports is being interpreted as the result of the OPEC production cut. Many are expecting that US crude inventories will continue to fall on lower imports and increased US crude exports, which are now up to circa 1.2 million b/d, the highest on record. The surge in exports of crude seems to be due to lower availability of OPEC crude in Asia, and the gap between Brent and US crude prices which have averaged $2.24 in recent trading.
Oil prices have moved little since they jumped from the mid-$40s to the mid-$50s in late November. Last week was no exception. OPEC hints about extending the price cuts beyond mid-year supported prices last week despite several indicators which suggested that the surplus may continue and it may be difficult to rebalance the markets in the short term.
Oil prices rebounded last week as the IEA confirmed that the ten OPEC members obligated to cut oil production are making good progress and obtained 91 percent of their goal by the end of January. The agency also reported that OECD crude stocks fell by nearly 800,000 b/d in the 4th quarter of 2016 although stocks continued to grow in China and other emerging economies. If OPEC and the other production cutters can maintain this level of cuts for the next five months, the IEA says that global stockpiles should drop by about 600,000 b/d during the first half of this year. This was the kind of news that many oil speculators wanted to hear. Hedge fund bets on higher oil prices have surged in recent weeks as many markets participants say they are expecting higher oil prices later this year.
With the advent of the Trump administration and Republican control of the Congress, the world oil situation seems likely to become more uncertain than usual. In the last two weeks, the new President has signed numerous executive orders that will have an impact on the oil industry in coming years. The President and the Republicans in Congress will soon have done everything they can to launch a new oil boom by reducing environmental and financial regulations; permitting whatever pipelines the oil industry wants to build; and opening federally-controlled property and offshore areas for drilling. Republicans have long held that America would be energy independent were it not for the restrictions unfairly placed on the industry. While these measures may eventually spur more drilling, for the time being, however, oil prices and the demand for oil will still determine investment decisions. Some are questioning whether the Keystone XL will be built in the near future given the relatively low oil prices and the shale oil boom that have become important since the pipeline was planned.