Author: Tom Whipple

Oil prices continued to show strength last week but closed in London up by less than a dollar for the week at $78.80. Brent now has closed above $78 a barrel six times since mid-May and has touched $80 a barrel once or twice but failed to close above $80 since mid-2014. As is now routine, traders are split between the increasingly effective US sanctions on Iran and the prospects of a lengthy trade war between the US and China. Last week was complicated by the issue of whether the OPEC+ consortium would officially raise production or leave individual production levels cloudy as they have been since June.

Oil prices climbed for the first three days last week with Brent climbing above $80 a barrel on Wednesday before falling back to close at $78.09 on Friday. An unexpected drop in the US crude stocks of 5.3 million barrels and a warning from the IEA that the global oil market was tightening and that higher prices are coming were behind the spike. However, concerns that the Sino/American trade war is showing no sign of getting better took over and sent prices lower. During the week, the price spread between Brent and WTI climbed above the $10 a barrel mark and closed the week at $9. The size of the price spread should continue the export demand for WTI in the coming weeks sending US crude supplies even lower.

Oil prices fell by another $1-2 a barrel last week to settle at $67.75 in New York and $76.83 in London as the struggle between lower demand occasioned by the Sino-American trade war balanced against falling Iranian exports. Last week saw a storm in the Gulf of Mexico which did less damage than expected and a 4.3 million barrel drop in US crude inventories which brought them to the lowest since 2015. However, prices were driven lower as US gasoline stocks rose by 1.8 million barrels and distillate stockpiles by 3.1 million barrels, suggesting that the summer driving season has come to an end.

Oil prices had two down and three up days last week closing out Friday a dollar or so higher with NY futures at $69.80 and London at $77.64. The struggle between the soon-to-be-implemented Iran sanctions and the threat to demand posed by the trade war continues as the primary factor driving prices. An unexpectedly large drop in the US crude inventory of 2.6 million barrels last week and a four-unit increase in the US oil rig count last week contributed to the volatility of the market.

The oil price surge which began two weeks ago continued last week with prices rising by $4-5 a barrel to settle on Friday at $68.72 in New York and $75.82 in London. The markets are still conflicted as to whether a reduction in demand occasioned by the trade war or a drop in supply stemming from the Iranian sanctions, the Venezuelan collapse, and the slowing growth of US shale oil production will dominate the immediate future. Last week we learned that China may continue buying US crude, but will swap or sell the oil to third countries so that crude imports to China would not come directly from the US. Third party crude would not be subject to any tariffs imposed on US crude or give the appearance that Beijing is backing down in the trade confrontation with Washington. Any crude that comes from the US would reduce China’s dependence on the volatile Middle East.

Crude prices were up Thursday and Friday of last week but still closed with a seventh consecutive weekly loss for WTI — the longest losing streak since 2015. Fears that the multiple escalating trade wars will lead to a drop in global demand are trumping the warnings that the lack of sufficient investment and the beginning of problems with US shale oil output could lead to production shortfalls in the months ahead.

Oil prices slid about 3 percent last Wednesday as the trade dispute between the US and China escalated and after Chinese import data showed a slowdown in energy demand. However, prices recovered a bit on Friday as US sanctions against Iran looked as if they would tighten oil supplies ending up the week with New York futures at $67.63 and London at $72.81.

Oil prices fell last week mostly on concerns that the looming US-China trade war would stifle demand. There was a short-lived rally on Thursday after the stocks report showed a 3.8 million barrel increase in total crude stocks mostly due to lower exports, but a 1.1 million drop in the inventory at Cushing, Okla. For now, the markets seem well supplied with production by Russia, the Saudis and the Gulf Arabs increasing after the relaxation of the market cap, and there has not yet been a significant reduction in Iranian exports in response to the new US sanctions. The week ended with New York oil futures down to $68.49 and London down to $73.21.

Oil prices climbed steadily through Thursday last week, supported by easing US-EU trade tensions and a temporary shutdown by the Saudis of a critical crude oil shipping lane. On Friday prices fell in sympathy with the US equities market to end the week at $74.29 in London and $68.69 in New York. Crude prices were unfazed last week by the unexpectedly robust US GDP figure, or the threatening rhetoric exchanged between Tehran and Washington.

The $3 drop in US oil prices last Monday was a signal that the forces moving the oil market are changing. Last year, the main forces pushing the oil markets higher were the agreement by OPEC and its partners to lower production and the growth of global demand. This year, an array of factors are pressuring the oil markets: the US sanctions that threaten to cut Iranian oil exports; US-China trade tensions; OPEC’s decision to raise crude output; and dwindling oil production from Venezuela. Moreover, there are supply disruptions in Libya, the Canadian tar sands, Norway, and Nigeria that add to the uncertainties as does erratic policymaking in Washington, complete with threats to sell off part of the US strategic reserve and a weaker dollar.

Oil prices dropped suddenly last Wednesday on the news that yet another dispute in Libya had been settled so that the traditional Libyan National Oil company was back in business exporting oil from its major terminals. New York futures fell by $3.50 a barrel on the news, and the London price decreased by $6.50, with New York closing out the week at $71 and London at $75.33.

Oil prices traded in a narrow range last week, between $73-$74 a barrel in New York, and $77-78 in London. A surprise increase in the US crude stocks balanced off the uncertainties of the US-China trade war that began on Friday. The announcement that the Saudis had increased production by 500,000 b/d in June helped keep the lid on prices despite the worsening prospects for global trade.

In the two weeks since the OPEC+ coalition decided to increase oil production by an undefined amount, oil prices have risen steadily on fears that there will be oil shortages and higher prices in the coming months. New York oil futures closed above $74 a barrel last week and London closed above $79 on Friday. Driving the markets higher are disruptions to oil production in Venezuela, Libya, Canada, Nigeria, and the US efforts to force Iran to zero exports this fall. The situation is not helped by the slowdown in the increase in US shale oil production due largely to bottlenecks in moving Permian shale oil to markets. There is no sign of a letup in the global demand for oil which is expected to increase by 1.5 million b/d this year.