• Crude Oil Prices And An Uncertain Rebalancing

    Crude Oil Prices

    The rise in crude oil prices from twelve-year lows seen in the first quarter of the year led many analysts to project a complete oil market rebalancing between 4Q 2016 and 3Q 2017. Investment bankers Goldman Sachs Group Inc. as well as the Saudi Arabian government, the world’s largest-volume oil exporter had earlier declared the crude oil glut over and announced the beginning of a market rebalancing. With oil (technically) entering a bear market on Monday, those projections may have been a little hasty. However, analysts at the Paris-based intergovernmental organization, International Energy Agency (IEA), as well as bankers Barclays Plc, Citigroup Inc. and Société Générale SA, have expressed confidence that the rebalancing is on track.

    False Re-balancing

    Contrary to declarations, that “rebalancing” of the oil market never really began. Global oil imbalance ― excess of supply over demand ― grew steadily from 1Q 2014 through 2Q 2015 even as demand was increasing.

    The unplanned supply outages in Canada (wildfires), Nigeria (militancy), and Libya (factional discord) among others in the early part of the year sent about 3.5 million barrels per day (bpd) of oil supply offline. This led to a decline in imbalance, which was mistaken for the significant cut in supply deemed necessary for a rebalancing of the market. Most of that outage has since been brought back on-stream.

    Crude oil demand fell by 510,000 bpd between 3Q 2015 and 1Q 2016 according to IEA data and is likely to continue in that trajectory over the next few months. Global crude oil and product storage facilities are currently bloated. In the U.S., crude oil inventories are well above the five-year average range while gasoline and other product stocks stand at multi-seasonal highs. Continue reading  Post ID 530

  • Why Some Investors Are Betting On An Oil Price Shock

    The global crude oil glut ― driven principally by the dueling spigots of U.S. tight oil producers and those of Organization of the Petroleum Exporting Countries ― has diminished somewhat. However, stockpiles in the U.S., which consumes more crude oil than any other country, remain well above the five-year range.  In addition, inventories of products such as gasoline stand at multi-seasonal highs, with the likelihood of a pullback in throughput by refiners. Concerns about weak fundamentals saw money managers and speculators, in the week to July 26, holding a record (dating back to 2006) net-short position on NYMEX-traded gasoline, Reuters reports.

    While money managers and other investors also reduced their net-long positions on NYMEX West Texas Intermediate crude to a near five-month low, some independents are betting on a crude oil spike in the mid-term; and there may be justification for that.

    Oil Prices

    Front month September contracts for the international benchmarks Brent and West Texas Intermediate (WTI) settled at US$42.46/bbl and US$41.60/bbl respectively, 29 July. That settlement price for Brent was down 14.5% for the month, the largest monthly drop in about six months; for WTI the price was down 14% for the month, the largest in about twelve months.

    The low price regime is driven in the main, by a massive inventory of crude oil and refined products, as well as a sluggish demand. According to data from International Energy Agency, IEA, global crude oil demand declined by 510,000 barrels per day (bpd) between 3Q 2015 and 1Q 2016. Many industry analysts have projected a market re-balancing in 2017, but any oil price rebound is likely to be sluggish.

    World Oil Supply, Demand Continue reading  Post ID 520

  • A Window On The Global Oil Market

    Global crude oil prices have rebounded somewhat from the twelve-year lows recorded earlier in the year; however, they are still quite removed from two-year-ago levels. Burdened by the lingering low-price regime, many of the higher-cost producers have either scaled-down their operations or gone completely offline, with quite a few filing for bankruptcy. According to the law firm Haynes and Boone LLP, about 85 North American oil and gas companies have gone bankrupt since the beginning of 2015. There has been a spike in defaults for U.S high-yield bonds. Speculative-grade U.S. defaults rose from 4.4% to 5.1% of total outstanding between Q1 and Q2, according to a recent Moody’s Investor Service bulletin.Spot Crude Oil Prices

    That price rebound stirred some ― even if limited ― production activity, particularly among the more nimble shale operators. Oil-focused rotary rig count for example, rose six of the past seven weeks in the United States, according to Baker Hughes data. While many analysts and stakeholders in the industry have projected a market rebalancing in the near term, certain near-term and longer-term issues are noteworthy.

    Oil Imbalance

    The protracted low-price regime was driven in the main, by oversupply of oil, which inevitably conduced to high inventory levels. In the United States, the Department of Energy reports that stock levels were well above the five-year range at the end of May; and though stocks dropped 2.3 million barrels the week ending July 15, they stood at a historical high for the period. At the end of May also, there were almost 94 million barrels of oil in floating storage globally, according to the International Energy Agency, IEA; and December saw a five-year record for floating storage tankers, as data for ocean tankers show. In addition, forward days of demand rose in Organization for Economic Cooperation and Development (OECD) countries from just under 58 in 1Q 2014 to more than 67 in 1Q 2016.

    Global crude oil imbalance ― excess of supply over demand ― which rose steadily from less than half a million barrels per day (bpd) in 1Q 2014 to more than two million bpd in 2Q 2015 has since been on a downward trend. Continue reading  Post ID 504