Category: Peak Oil Review

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.

Oil prices, which have been falling since mid-May, fell more than $2 on Friday to settle at $65.06 in the US and $73.44 in London. For now, the chief concern is that the OPEC + coalition will raise or lift the production cap this coming Friday and allow as much as another 1.5 million b/d of crude to enter the market. Additional pressure on oil prices is coming from the looming Sino-American trade war which could damage the global economy and lower the demand for oil. The announcement that Beijing might impose a hefty tariff on the 360,000 b/d of crude that the US has been sending to China in recent months did not help the situation nor did the continual increase in US shale oil production despite the bottleneck on getting crude out of the Permian Basin. While the renewed US sanctions on Iran may eventually reduce its ability to export oil, these sanctions do not start up until later this year so that it will be well into 2019 before we have some idea of their effectiveness.

Oil futures traded in a narrow range last week, at circa $65 a barrel in New York, and $76 in London. The standoff between higher and lower oil prices continues apace. Those saying that prices will soon be higher are looking at the rapid decline of Venezuela’s oil production; the damage to Iran’s oil exports that could come from the new US sanctions; and the mounting obstacles to further rapid increases in US shale oil production. Those seeing lower prices ahead are citing the likelihood that OPEC+ will increase production later this month and the dangers to global demand stemming from the possible trade wars.

In a short trading week, oil prices closed mixed with London futures holding steady but New York declining on higher US oil output. US oil prices continue to fall well behind world prices, as booming shale oil production deals with pipeline constraints, leading to the biggest discount to North Sea Brent in three years. On Thursday, the discount climbed to over $11 a barrel. The weekly US stocks report showed that while oil production grew by 44,000 b/d, a drop in US imports and a surge in exports to 2.1 million b/d resulted in a decline in US commercial crude inventories of 3.6 million barrels from the week before last.

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Brent crude traded briefly at $80.18 a barrel on Thursday before slipping back to close the week at $78.51. This was the highest that London oil futures have traded since November 2014. New York futures closed the week at $71.28 which is more than $7 a barrel lower than London giving another push to US crude exports. The price jump came amidst a burst of bullish news including a larger-than-expected drop in US petroleum stocks of 1.3 million barrels of crude and a drop of 3.8 million barrels of gasoline. The short-lived spike also came just after a new Goldman report saying the US shale oil production can’t possibly make up for the potential loss of oil from the new Iran sanctions and that prices are likely to move higher.

Oil prices rose more than 3 percent last Wednesday after President Trump abandoned the Iranian nuclear deal and announced the “highest level” of sanctions against Tehran. The price surge stalled on Friday, however, after it looked likely that Europe would try to maintain the deal with Iran, which could keep that country’s crude exports on global markets. Crude futures closed the week just below multi-year highs with London at $77.12 and New York at $70.70, up 2.8 percent and 1.2 percent respectively.

Oil prices continued to climb last week and are now up nearly $8 a barrel in the past month with NY futures at $69.72 and London $74.87. US oil futures are now at their highest in more than three years, as global supplies remain tight and the market awaits new US sanctions against Iran which seem likely to be imposed later this week. According to the EIA, US domestic oil production continues to climb — up by another 33,000 b/d the week before last — and US drillers added nine oil rigs to the count last week. Thus the struggle between increasing US shale oil production and deteriorating geopolitical situations around the world continues.

With only two weeks to go before President Trump decides whether the US will withdraw from the Iran nuclear treaty, the oil market’s chief concern is about what could happen if the US reimposes sanctions. Even though Washington would have few, if any, allies helping to reimpose sanctions on Iran, the US carries considerable weight in the world banking system by threatening to deny access to the US to anyone doing business with Tehran. Conventional wisdom holds that renewed sanctions would slow Iranian oil exports and drive prices higher.

In the last two weeks, London oil futures have increased by $7 a barrel, closing last week at $74.06. New York futures closed circa $5.50 below London. This price differential is making US crude very popular on the world markets so that exports are setting records and drawing down US crude stocks. Behind the price surge is the steady drop in world crude stocks; strong demand from Asia as China’s economy grows faster than forecast; the likelihood that OPEC will continue its production cut on into next year; and the possibility that the Trump administration will abandon the nuclear treaty and impose new sanctions on Iran. There also are the deteriorating situations in Venezuela where production seems likely to drop by hundreds of thousands of barrels per day this year, and in Libya where the incapacitation of the country’s military strongman could result in a drop in oil production as local militias reassert themselves.

Oil prices rose by nearly $5 a barrel on concerns that a US and allied attack on Syrian military installations would lead to a wider war. Futures prices closed Friday at $67.39 in New York and $72.58 in London setting multi-year highs. After the markets closed, strikes on Syrian chemical facilities were launched. Initial reports suggest that considerable care was taken to avoid harming Syrian civilians or Russian and Iranian interests. A relatively benign response from Moscow suggests that this attack alone will not lead to more serious hostilities in the immediate future that could drive oil prices higher.

Oil futures have fallen about $3 a barrel from two weeks ago when London prices were close to $70. New York futures closed out last week circa $62 and London $67. Prices held steady until Thursday when President Trump announced another round of the tariff war with China sending prices down $1.50 a barrel on Friday. So far neither side has actually imposed any new tariffs, leaving observers to wonder whether Washington and Beijing are simply posturing before negotiations, or a major trade war is in the offing. Other than the possibility of a trade war, the trashing of the Iran nuclear treaty, increasing tensions in the Middle East, and the Korean situation, most of the news lately has suggested higher prices are in the offing.

After an up-and-then-down week, oil and gas markets closed slightly higher Thursday ahead of the Easter holiday weekend. All major U.S. and European stock exchanges and markets were closed Friday for Good Friday, which coincides with the Passover holiday that starts Friday at sundown.

The most significant news driving the oil markets last week came from Washington, where major policy and personnel shifts drove the markets down and up last week. Crude posted its biggest weekly gain since July on Friday as President Trump changed his national security team, fueling speculation sanctions on Iran will be re-imposed. Earlier in the week, the President’s imposition of new tariffs on imports had observers talking about a tariff war that could cut the demand for oil as economies slipped. Indications from the Saudis and Russians that the OPEC production freeze could be extended into 2019 helped lift prices earlier in the week.

Oil prices closed on Friday at $66.21 in London and $66.34 in New York. Prices are about in the middle of the trading range where they have been since mid-February. The markets, torn between increasing US shale oil production and what is thought to be increasing global demand, seem likely to stay within this narrow range until there is convincing evidence one way or the other. While prices have climbed by more than 40 percent since the middle of 2017, day-to-day volatility has fallen to its lowest level since 2014.

It was a volatile week with oil prices climbing slowly on Monday and Tuesday, falling by over $2 a barrel on Wednesday and Thursday, and then rebounding to close down about 50 cents for the week on Friday. As has become normal of late, the up days were largely driven by expectations of increasing demand and the down days by fears of a shale oil glut. New York oil has been bouncing around in the low to mid-$60s since mid-January while London futures have been trading some $3-4 higher.

Oil prices fell sharply last week ending up at $61.25 in New York and $64.37 in London. A higher than expected increase in crude stocks and gasoline was the impetus for the decline. An unexpected decline in Chinese economic activity, likely due to the winter holiday, did not help the outlook for oil nor did President’s Trump’s announcement of new tariffs and the remark that “trade wars are good, and easy to win” did not help the outlook for oil prices. US oil production and the oil-rig count continue to climb slowly. Talk in Washington of crippling new sanctions on Venezuela which would likely remove still more of its oil from the export stream did not help the situation.

After a $7 a barrel fall between late January and mid-February, oil prices have rebounded by about $4.50 a barrel and are now in the $63-67 range. Both major oil price benchmarks, WTI and Brent, saw the second straight week of gains. There seem to be several factors behind the rebound. These range from strong demand particularly in Asia to reports that the oil glut that has obtained for the last few years is shrinking. US crude stocks fell by 1.6 million barrels last week and by 2.7 million at the Cushing hub which is receiving much of the US shale oil production. Last week’s EIA data showed US crude exports above 2 million b/d, very close to the record of 2.1 million set in October. Of note was the first export of US crude on board a 2 million barrel capacity supertanker that was loaded at the Louisianan Offshore Oil Port that has been reconfigured to handle exports as well as imports.

It was a volatile week with stock markets crashing and oil prices falling by nearly $7 a barrel from recent highs. Behind the price collapse was a stronger dollar, the break in the equity markets, ever increasing US shale oil production, and an unexpectedly large jump in the rig count the week before last. At Friday’s close New York oil futures were slightly below $60 a barrel and London’s Brent was not far behind at $62.79. With the Brent/WTI price spread below $3 a barrel, there will be less incentive to buy US crude when shipping costs are considered.

Oil prices fell for most of last week, but then rebounded to close at $56.55 in NY ($62.73 in London) on Friday. This was only a dollar or so a barrel below the recent high set the week before last. As usual, there were numerous factors impacting oil prices. OPEC reported a small drop in October production due to lower output from Iraq, Nigeria, and Iran. OPEC also said it expects global demand for oil to grow by 1.5 million b/d this year and again in 2018. The IEA is not so sure that demand will be so strong, noting that crude prices have risen by roughly 20 percent since early September and now the “market balance in 2018 does not look as tight as some would like and there is not, in fact, a ‘new normal’.”

Oil prices leveled off last week with New York futures closing at $56.74, up more than $20 a barrel since June.  Brent closed about $7 higher at $63.52. As has become normal these days, multiple factors impacted the oil prices last week pulling the markets in both directions. While the arrest of over 200 important princes, ministers and industrial leaders in Saudi Arabia on charges of corruption early in the week roiled the markets for a few days, by the end of the week the markets were largely ignoring what could morph into a major Middle East crisis or even hostilities.

The price surge, which began in mid-September, continued last week with NY futures closing Friday at $55.64 and London at $62.07. The $6.50 spread is leading to ever higher US exports which are now above 2 million b/d. Crude prices are at their highest level in over two years. Behind the price surge has been the steady stream of hints from the Saudis and the Russians that they are ready to back an extension of the production freeze through 2018 at the November 30th meeting. Some are asking whether the major oil exporters will be willing to continue a production freeze if prices move much higher. There now is a solid perception among traders that the global crude stocks are declining and that demand is rising. This in addition to the OPEC hype is contributing to the price surge.