Oil prices plunged on Friday with New York futures falling about $5 a barrel. Precipitating the fall were concerns that there is no end in sight to the US-China trade war and that the global economy could slow by enough to affect oil demand. Prices rebounded about 1 percent on Friday but closed out the week at $58.62 in New York and $68.20 in London for their biggest weekly drop of the year. US crude oil inventories rose by 4.7 million barrels the week before last, hitting their highest levels since July 2017, mainly due to abnormally low refinery runs (89.9 percent of capacity) for this time of the year.
The struggle between fears that the US sanctions will lead to an oil shortage and the intensifying US-China trade war will lead to a depression continued last week. Oil prices fell on Monday, climbed smartly for three days, and then fell again on Friday as the trade war took a turn for the worse. The week ended with prices higher — $62.76 in New York and $72.21 in London.
Uncertainty was the watchword of the week as oil traders juggled the faltering US/China trade deal, increasing tensions in the Middle East, and falling US crude stocks. Oil futures gyrated in a narrow range closing at $70.62 in London and $61.68 in New York with a small weekly loss. The EIA reported a 4-million-barrel drop in US crude inventories the week before last, and there remains a question as to how fast US oil production is increasing. Brent crude futures have opened up a steep backwardation, evidence that the physical market for crude is tightening. Given that Iranian exports are plunging, Russia’s are temporarily lower due to contaminated oil, and the future of Libyan and Venezuelan oil exports is cloudy, higher oil prices would seem to be coming. Some financial institutions are bullish for oil.
After climbing more than $20 a barrel from $52 in late December to nearly $75 on April 23rd, prices have fallen back so that Brent closed at $70.85 on Friday. Despite threats to the oil supply from the geopolitical situations in Iran, Libya, Venezuela, and Nigeria, prices have been falling for the last two weeks. Last week prices fell to recent lows after the US stocks’ reports showed unexpected crude oil builds for two weeks in a row and EIA said that US oil production was growing again after holding steady for two weeks. It takes about 60 days to compile accurate US production data. EIA estimates and forecasts of US production have been a bit shaky of late so we will not know if the prediction that US shale oil output grew by 84,000 b/d to a record of 8.4 million in March is correct until the end of this month.
Last week began with oil prices continuing to climb on concerns that tightening sanctions on Iran would cut oil supplies. Brent crude touched $75 for a short time after Moscow announced that it was halting some crude shipments to Europe due to contaminated pipelines. Thursday afternoon market sentiment reversed, and prices plunged circa $3 a barrel to close at $62.86 in New York and $71.61 in London on Friday. The price drop was helped by a presidential tweet that said “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement.”
Oil prices continued to climb slowly last week with Brent closing just below $72 a barrel, a new high for the year, and New York futures closed $8 a barrel lower at $64. Prices are still about $13 a barrel below the 2018 high of $85 set last October. The news last week was generally bullish with the Saudis reporting an official 277,000 b/d drop in February, Iran having trouble selling its oil, Venezuela’s production continuing to fall, and the prospect that the civil war in Libya seems likely to reduce its exports. China reported that its massive dose of pump priming appears to have stabilized its economic slowdown for now and Washington keeps talking about an end to the China-US trade dispute.
Oil prices continued to creep up last week closing out at $71.55 in London and $63.89 in New York, making the sixth consecutive week of gains. If you have been watching your gas pumps lately, you have noted that regular is up 30 cents a gallon in the last month to average $2.83 in the US. In California, however, regular is just about $4 a gallon and is going for $4.62 in one county.
Prices have climbed steadily for the last three months closing on Friday above $60 a barrel in New York and $67 in London. The combination of slowing US shale oil drilling and the Venezuela, Iran, and the OPEC+ situations continue to outweigh the bad economic news that may someday lower demand. The situation in Venezuela gets worse every day, and it seems likely that the country will see a significant drop in production and exports during March.
“This [Exxon] is the company that denied the [climate] science, despite knowing the damage their oil exploitation was causing; which funded campaigns to block action on climate and now refuses to face up to its environmental crimes by attending today’s hearing. We cannot allow the lobbyists from such corporations free access to the corridors of the European parliament. We must remove their badges immediately.”
Molly Scott Cato, member of EU parliament
Prices climbed for the first three trading days last week on the perception that oil supplies were tightening due to the OPEC+ cuts, the US sanctions on Iran and Venezuela, and a 9.6-million-barrel decline in US crude stocks. Prices in London closed on Wednesday at $68.50 — a four-month high. However, market sentiments changed on Thursday and Friday as fears of an economic slowdown hit the equity and oil markets. Signals from the Federal Reserve that there may not be any more interest rate increases this year contributed to the idea that harder economic times are ahead. A report on Friday showed factory output in the eurozone fell in March at the fastest pace in nearly six years, while US manufacturing activity slipped to its lowest level in almost two years.
“Total open interest has fallen by twenty percent, as can be seen from the figure [below]. Swap dealer short positions have also contracted. The message is clear: producers are hedging less, and they are hedging less because they expect to produce less. The statistics point to a one to two-million-barrel decline in production from the frackers. Some but not all this loss may be made up by the increased activity of firms such as Exxon. In short, the growth in US oil output is about to be reversed.
Philip Verleger, energy analyst
The struggle between a weakening global economy and the shrinking availability of oil supplies seems to be tipping in favor of the latter as oil prices slowly make their way higher. The electric power disruption in Venezuela has combined with the US sanctions on Iran and Venezuela and reports that the rapid increase in US shale oil production to add a bullish tone to the oil markets. Last week oil prices climbed $1-2 a barrel to close at $67 in London and $58 in New York. Last week a new EIA forecast cast doubt on the optimistic projections for US shale oil production which was slated to increase from 11.9 million b/d at the end of 2018 to 13.5 million by the end of 2020.
“All the climate arguments are real, urgent and important.”
Spencer Dale, group chief economist at supermajor BP, told the Washington Post.
The struggle between declining economic growth and falling oil supplies continued to affect oil prices last week. The failure of a significant portion of Venezuela’s electricity grid has already been a significant blow to the country’s roughly 1 million b/d of oil production, and the situation seems likely to get worse. However, part of this decline could be offset by the return to production of Libya’s 300,000 b/d Sharara oilfield after being offline for three months.
“The once-powerful partnership between fracking companies and Wall Street is fraying as the industry struggles to attract investors after nearly a decade of losing money. Frequent infusions of Wall Street capital have sustained the US shale boom. But that largess is running out. New bond and equity deals have dwindled to the lowest level since 2007. Companies raised about $22 billion from equity and debt financing in 2018, less than half the total in 2016 and almost one-third of what they raised in 2012.
Bradley Olson and Rebecca Elliott, Wall Street Journal, 2/24/19
The struggle between lower crude output and the prospects for a global economic setback that could reduce the demand for oil continued last week. Prices rose on bullish news early in the week and then fell to close only slightly higher for the week at $55.80 in New York and $65.07 in London. Most analysts are predicting that oil prices will continue to rise as the case for lower production later this year seems stronger than the case for lower demand.
“While Exxon invested $12.5 billion on international upstream capital expenditures (CAPEX) to produce 1.7 million barrels a day of total liquid oil production in 2018, it spent a staggering $7.7 billion in US upstream CAPEX to supply only 551,000 b/d of oil. Thus, Exxon spent nearly double the amount of CAPEX for each barrel of US oil production versus its international oil supply… ExxonMobil’s US oil and gas sector is heading toward a financial disaster. It’s US oil and gas CAPEX spending will choke the living hell out of its profits. While some may think I am fermenting hype, the financial results shown above point to a pretty clear trend… and it ain’t good. If one of the world’s largest oil companies can’t make money producing US shale, then what does that say for the rest of the industry?”
Steve St. Angelo, independent precious metals and energy researcher
Brent crude futures briefly touched $67.73 a barrel on Friday, their 2019 high. The London contract then fell 5 cents to settle at $67.12 a barrel while US futures US gained 30 cents to settle at $57.26 per barrel, after hitting $57.81 earlier in the day. Despite forecasts that US shale oil production will continue to increase rapidly next month, supply disruptions in Venezuela and Libya, the 1.8 million-barrel OPEC+ production cut, and hopes that the US-China trade dispute may be settled soon, were enough to push prices higher last week. Prices have now gained about $5 a barrel since mid-February but are still some $20 a barrel below the recent highs set last October.
“Washington doesn’t like cartels like OPEC. But then how can you have one market [the oil trade] dominated by one currency – the dollar?”
Participant at an EU industrial working group convened to promote the euro and fight the monopoly of the US dollar in oil and commodities trading (2/14)
Prices moved higher last week as the markets perceived that production problems in Venezuela and elsewhere might outweigh any decline in demand that could take place if global economic growth slows. London oil climbed by nearly $5 a barrel last week to close at $66.25. This is still about $20 a barrel lower than the recent peak set last October, but up about $16 a barrel from the early January low.
“[W]ith President Trump’s poll numbers in negative territory, whichever candidate emerges from the Democratic primary will have a decent shot at winning the presidency. If that occurs, they will be on record having supported the Green New Deal and will most likely push for some version of it in 2021. That means that oil and gas companies, having enjoyed a deregulatory bonanza under Trump, could see rougher waters ahead. But with the climate debate getting momentum, that pressure is not going away, no matter what happens with the Green New Deal.”
Nick Cunningham, Oilprice.com
Oil prices have moved very little in the past month closing on Friday at $52.72 in NY and $62.10 in London or about where they were in the first week of January. Several factors such as the recent price drop, the OPEC+ production cut, the US sanctions on Tehran and Caracas, and the outage of Libya’s largest field should be pushing prices higher. However, concerns about slowing global economic growth, the US/China trade dispute, and the possibility of turmoil resulting from the UK’s exit from the EU suggest that the demand for oil could drop significantly in the coming year.
Global Commission on the Geopolitics of Energy Transformation on the future prospect of renewable energy
“Because energy can be generated by technologies, using the sun and wind, rather than concentrated natural resources in the form of oil and gas, which is not ubiquitous in geographic terms, many countries will be able to reduce their vulnerabilities to price spikes and outright supply disruptions by pivoting to renewable energy. Moreover, the strategic importance of chokepoints – the Straits of Hormuz, or the Straits of Malacca for instance – will diminish as fossil fuels lose their grip.”
Global Commission on the Geopolitics of Energy Transformation
Oil prices continue to hover in the low $50s in the US and low $60s in London – about where they have been since early January. The main issue affecting prices remains the efficacy of the OPEC+ production cut vs. US shale oil production and the slowing Chinese economy. Last week a political upheaval occurred in Venezuela, raising the possibility that Caracas would no longer be able to export 500,000 b/d to the US or that its production might fall below its current 1 million b/d level. So far, the Venezuelan turmoil has not moved oil prices, but with the world’s major powers lining up for or against the Maduro government, prices seem likely to be affected.
“The fracking industry has helped set new records for US oil production while continuing to lose huge amounts of money — and that was before the recent crash in oil prices. But plenty of people in the industry and media make it sound like a much different, and more profitable, story… The explanation is pretty simple: Shale companies are not counting many of their operating expenses in the “break-even” calculations. Convenient for them, but highly misleading about the economics of fracking because factoring in the costs of running one of these companies often leads those so-called profits from the black and into the red.”
Justin Mikulka, DeSmog Blog (1/19)