Why Oil Prices May Have Peaked

Robert Boslego - INO.com Contributor - Energies


Why Oil Prices May Have Peaked

Crude oil futures peaked about a week before the OPEC meeting just below $59/bbl. Prices had been in an uptrend since October 6th, just before Hurricane Nate disrupted production in the Gulf of Mexico. There had also been indications by the White House that President Trump would soon deliver a speech explaining why he would not certify Iran’s compliance with the terms of the nuclear sanctions agreement. As a result, oil prices first rose as a result of the hurricane, followed by a risk premium due to the stand-off with Iran and expected extension for of the OPEC/non-OPEC deals through 2018.

NYMEX Crude Oil Prices

Given the OPEC announcement on November 30th, which means that the deals are baked-into crude futures for 2018, the question is, where should prices go? Based on the factors below, I expect prices to trade lower. Continue reading "Why Oil Prices May Have Peaked"

Oil Market Waiting For A Catalyst

Robert Boslego - INO.com Contributor - Energies


On November 15th, Saudi Energy Minister Khalid al-Falih said, “We need to recognize that by the end of March we’re not going to be at the level we want to be which is the five-year average, that means an extension of some sort.”

He went on to say that Saudi Arabia favors making an extension decision at the OPEC meeting at the end of this month. “My preference is to give clarity to the market and announce on November 30 what we’re going to do.”

At the conclusion of the last OPEC meeting in May, the Saudi minister had stated that the current production quotas will “do the trick” of rebalancing stocks to normal levels within six months. Earlier this month, the DOE projected that global OECD stocks at end-2017 would be right where they were at end-2016. And it projected that 2018 inventories will be higher, not lower.

Russia’s continued participation seems to be a linchpin, and the Russian energy minister, Alexander Novak, reportedly met with Russian oil producers about their view of extending the production deal. According to TASS, everyone but Gazprom Neft agreed to a six-month extension, not the nine-month extension favored by Mr. Al-Falih. Gazprom Neft expects to launch new projects in 2018. Continue reading "Oil Market Waiting For A Catalyst"

Oil Price Surge May Become OPEC's Worst Enemy

Robert Boslego - INO.com Contributor - Energies


Crude prices bottomed in the current price cycle during the third week of June. Subsequently, there has been a surge to the highest crude prices in two years. My theory is that the market has priced-in a geopolitical risk premium given the de-certification of the Iran nuclear deal by President Trump as signaled by the White House on October 5th.

Another factor has emerged. It has become increasingly clear that the DOE’s estimates of weekly U.S. crude production have overestimated the actual monthly figures, as reported two months in arrears. The errors since April have been large. Some have concluded that American shale oil production is not as big of a countermeasure to rising oil prices as had been believed.
Continue reading "Oil Price Surge May Become OPEC's Worst Enemy"

Oil Prices Break-Out of Trading Range

Robert Boslego - INO.com Contributor - Energies


Oil futures prices have broken above the trading range where they have been since February when the market was expecting supply and demand would balance quickly as a result of the OPEC/non-OPEC deals. But those hopes were dashed because the global demand was in a seasonal decline, and inventories remained stubbornly high.

Prices managed to break higher due to a combination of circumstances:

U.S. and Global Inventories

Hurricane Harvey in the U.S. Gulf of Mexico (GOM) disrupted refinery operations, causing product stocks to draw rapidly. It was followed by Hurricane Nate, which disrupted crude oil production in the GOM.

In addition, U.S. crude exports reached record levels recently, averaging 1.744 million barrels per day (mmbd) over the past four weeks, a gain of 293 % from the same weeks a year ago. Petroleum product exports have also been strong, averaging 5.125 mmbd in the same period, up 23% v. a year ago.

Together, these trends have reduced U.S. inventories by 40 million barrels since the week ending September 8th. Global OECD stocks have dropped about 51 million barrels from May through September, though this is largely due to normal seasonal trends. Continue reading "Oil Prices Break-Out of Trading Range"

OPEC's Fake Results and Upcoming Quagmire

Robert Boslego - INO.com Contributor - Energies


OPEC’s market monitoring committee reported that OPEC reached “120% compliance” with the production adjustments. It also reported that commercial OECD stocks had been reduced by 178 million barrels “since the beginning of the year.”

In reality, OPEC exceeded its collective production limit by about 850,000 b/d in September. It reported production at 32.748 million barrels per day, but that level must be adjusted to be comparable to the 32.5 million production ceiling it set last November.

To get a comparable figure, two adjustments must be made. Production from Indonesia must be added (740,000 b/d) because its output was included in the ceiling, notwithstanding it was dropping out. And production from Equatorial Guinea (140,000 b/d) must be deducted because it was not an OPEC member and its output was not included. Continue reading "OPEC's Fake Results and Upcoming Quagmire"