Author: Tom Whipple

Oil prices fell by more than 11 percent last week to their lowest since mid-2017 with London futures closing at $53.82 and New York at $45.59. There is much debate as to whether the rapid fall in prices is due to oversupply or fears of a global economic recession slowing the demand for oil. Forecasts of rapidly growing US shale oil production next year that could offset much of the OPEC+ production cut and growing political chaos in Washington, London, Paris, and other world capitals is adding to concerns about the future.

Oil prices were volatile last week trading inside a narrow range of about $1.50 a barrel and climbing or falling in response to the news of the day. Reports of the OPEC production freeze, the Iran sanctions, or production slowdowns in Libya and Venezuela push prices up while news of economic problems and falling equity markets tend to push prices down. At week’s end, New York futures settled at $51.20, about where they have been since the $7 a barrel price in mid-November. London futures closed $9 higher at $60.28 which is about they have been since November 22nd.

Oil prices surged briefly on Friday after the announcement of a 1.2 million b/d OPEC+ production cut; however, by the close NY futures were up only $1.61 to close at $52.61, and London was up about the same to close at $61.67. The bulk of the cut is to come from the Saudis and their Gulf Arab allies. Moscow is to cut production by 228,000 b/d but does not expect its cuts to start until spring, and the Iranians were exempted from the cut. Despite the announcement, oil prices were still down slightly for the week.

Quote of the Week “Total US oil reserves in 2017 exceeded a … 47-year-old record, Continue Reading

Oil prices slid more than 6 percent on Friday to the lowest levels in more than a year. New York futures closed at $50.42, down almost $26 a barrel since early October, and London closed at $58.80, down more than $27. The reasons for the plunge, which some observers are calling excessive, are well known. Inventories continue to build as US shale oil production increases; there are signs of a weaker global economy ahead; Washington has granted six-month waivers for Iranian oil importers; Moscow is not interested in cutting production; and there are doubts that the Saudis will make a significant cut in production while under pressure from President Trump to keep up production. Trump’s support for Crown Prince bin Salman in the wake of the killing of journalist Jamal Khashoggi is likely to complicate decision-making in Riyadh, to say the least.

The $20 a barrel price plunge, which began in early October, continued last week with New York futures closing at $56.46 and London at $66.76. Behind the drop is weaker demand; Washington’s issuance of waivers that would allow Iran to keep exporting at least some of its production for the next six months; increasing production of US shale oil; and the rapid buildup of US crude inventories. The EIA reported last week that the US crude stockpile climbed by 10.3 million barrels during the week before last to 442.1 million barrels, the highest level since early December 2017. The EIA also reported that US crude production climbed by 100,000 b/d to 11.7 million b/d, the highest on record.

The plunge in oil prices, which began in early October, continued last week with New York oil futures closing Friday at $63.14, down about $14 a barrel in the past month. London futures have followed a similar pattern falling from $86 to $72.83 on Friday. During September the threat of the renewed US sanctions on Iranian exports forced world prices into the high $80s with many predicting that we would soon see $100 oil again. During the past month, however, market sentiment changed as it appeared the sanctions might not be as effective as some hoped, the global oil production increase, higher prices and the brewing US-China trade war threaten demand in the coming years.

Oil prices fell by nearly 3 percent last week to settle at $77.62 in London and $67.59 in New York. This was the third weekly decline in a row that has taken prices down by about $10 a barrel since early October. As has been the case for several months, prices fall on reports of excess supply or the possibility of lower demand and increase on concerns about what the Iran sanctions due to begin next week will do to supplies.

Crude oil prices have been volatile thus far in October, hitting a four-year high to start the month before falling nearly $8 a barrel in the two weeks. At the close on Friday, New York futures were at $69.12 and London at $79.78. Market sentiments have changed this month with more traders worrying about the economic problems facing China than how effective the US sanctions on Iranian exports will be.

Oil futures fell by over $4 a barrel on Wednesday and Thursday but then stabilized on Friday to close at $71 in New York and $80 in London. Behind the selloff were a sharp drop in the equity markets, profit-taking in the wake of a $14 a barrel price increase since mid-August, and concerns that the Sino/US trade war may reduce global demand for oil. EIA, IEA, and OPEC revised their forecasts downward for the size of next year’s demand increase. The International Monetary Fund cut its forecast for global growth to 3.7 percent for 2018 and 2019, down from a previous estimate of 3.9 percent, and the EIA reported that US crude stocks increased by 6 million barrels the week before last.

Oil prices continued to climb last week, with London futures hitting $86.74 a barrel on Wednesday, $10 higher than they were a month ago. Later in the week, profit taking and announcements from the Saudis and Russia that they were going to increase production drove prices lower. Whether the Saudis, Russia, and their close allies can increase production by enough to cover the decline in Iranian exports remains contentious. At week’s end, oil prices had settled to $74.34 in New York and $84.16 in London for a $10 a barrel difference.

Oil prices continue to increase primarily on concerns that the sanctions on Iran and the collapse of Venezuelan production will lead to shortages in the coming year. Last week London futures, which are more vulnerable to the Iranian situation, climbed by about $2 a barrel to close at $82.78. London futures are on track for a fifth quarterly advance, a streak not seen since the first half of 2008. Iranian exports of crude and condensates have declined by 800,000 b/d from April to September, according to the Institute of International Finance. Analysts expect a reduction of anywhere between 500,000 and 1.5 million b/d in Iranian supply due to the sanctions, with most expecting Saudi Arabia to take the lead in filling any supply gaps.