In Oil & Companies News 05/09/2016
International crude oil prices staged a remarkable rally in August but momentum waned by the end of the month reminding markets once again of the transient nature of these trends under current market conditions.
After losing 20 percent of their value in July, ICE Brent and NYMEX WTI rebounded by around 15 percent in August. Front-month October Brent settled at US$48.37/barrel on Aug. 30, up from $42.14/barrel on Aug. 1, and NYMEX WTI settled at $46.35/barrel on Aug. 30, up from $40.84/barrel on Aug. 1.
This was driven by a vague possibility that OPEC and non-OPEC oil producers may cohesively agree to curb output to rebalance the market, though technicals and movements in the US dollar did contribute to the uptick in prices.
Fundamentals, however, remain largely unchanged and still more skewed on the bearish side — refined products stocks remain high; OPEC supply is at record high levels; non-OPEC supply has picked up; and against this backdrop, oil demand growth at best remains stable.
What kicked off the oil price rally this month was a comment by Saudi energy minister Khalid al-Falih that Saudi Arabia was willing to cooperate with other countries “if there is a need to take any action to help the market rebalance.”
Though the message was hardly new — Falih made similar comments after the June OPEC meeting in Vienna — oil prices shot up some 5 percent the day they were reported.
This was followed by comments from various other oil officials from Russia to Nigeria to Venezuela about a willingness to hold talks on the sidelines of the International Energy Forum (IEF) in Algiers over Sept. 26-28, pumping up prices further in anticipation of a deal, or at least scaring short sellers out of the market.
ICE Brent and NYMEX WTI hit a two-month high in mid-August at around $51/barrel and $49/barrel respectively. But Falih undid what he had done by commenting later in the month that intervention is not necessary and the forces of supply and demand should be allowed to do the work.
The thing to keep in mind is that though there has been talk about a meeting on the sidelines of the IEF, there is no freeze deal on the table, unlike the failed Doha summit in April, when a proposal to hold
production at January 2016 levels was reportedly agreed to in principle by Saudi Arabia, Venezuela, Russia and Qatar weeks before the meeting.
That summit fell apart at the last minute on Saudi Arabia’s insistence that Iran — which did not attend — be a part of the deal.
Also, OPEC production in recent months has been hitting record highs and could grow further, as the apparent market share battle continues. OPEC pumped 33.12 million b/d of crude in July, according to the latest Platts OPEC survey.
Thus, freezing production at current levels would appear to have little to no impact on market fundamentals.
Meanwhile, stocks remain high.
According to the Paris-based International Energy Agency’s July monthly oil report, an OECD inventory overhang continued to shift from crude into products during June, with commercial stocks swelling by 5.7 million barrels to a record 3.09 billion.
Gasoline inventories piled up along with already high levels of gasoil as refiners on both sides of the Atlantic raised throughput, the International Energy Agency (IEA) said. But the IEA said it expects a broadly balanced market in the second half of the year.
“We expect more subdued growth in refining activity, with runs lagging total oil demand growth for all but the first quarter this year — hardly good news for the crude oil market in the short term,” the report said.
“But there is no gain without some pain. The resulting product stock draw will increase refiners’ appetite for crude oil and help pave the way to a sustained tightening of the crude oil balance.”
The IEA also pointed out that non-OPEC supplies rose 550,000 b/d in July amid strong production ranging from Canada to the North Sea to Russia. However it kept in place its estimate that year-on-year, non-OPEC output will fall by 900,000 b/d in 2016.
Its demand growth estimate for 2016 remained unchanged at 1.4 million b/d to 96.25 million b/d.
Looking ahead, movements in the US dollar have exerted considerable influence over oil prices in the last few weeks and this is likely to continue.
With no big changes seen in demand-supply fundamentals in the near term, one can assume that the oil market will be at the mercy of external factors to draw its conclusions, at least until the IEF meeting during Sept. 26-28.
Source: The Jakarta Post
