Wednesday, 15 August, 2018

Oil ends slightly lower, books weekly drop as investors watch OPEC

Venezuela battles enormous oil backlog Oil prices extended losses after JP Morgan cuts forecast
Priscilla Morrison | 10 June, 2018, 12:27

West Texas Intermediate's losses were less severe: the benchmark ended its session 21 cents lower at $65.74 per barrel.

The incredible compliance from OPEC members and Russian Federation to production guidelines has drained the surplus from global supplies and brought oil prices up to trade in the mid-$60's here in the US, and the mid-$70's everywhere else. For the week, Brent fell 0.5 percent, while US crude slipped 0.3 percent.

The analyst of J.P.Morgan, Abhishek Deshpande, wrote in a note, "While geopolitical tensions and lingering risks of large supply disruptions remain an upside risk throughout 2H18, we think that prices will be corrected downwards towards end of the year and remain capped in 2019".

JP Morgan cut its 2018 crude forecast for WTI by $3 to $62.20 a barrel, traders said.

The agreement, which was first reached in December 2016, is expected to last till December 2018.

China's May crude oil imports eased away from a record high hit the previous month, customs data showed on Friday, with state-run refineries entering planned maintenance.

Further weighing on prices has been rising USA output, which hit another record last week at 10.8 million bpd.

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The surge in USA production has pulled down WTI into a discount versus Brent of more than $11 a barrel, its steepest since 2015.

Global benchmark Brent crude surged almost $2 a barrel on Thursday, lifted by concern about a steep drop in exports from Venezuela and worries OPEC may not raise production at its meeting this month. But, the recent announcement from the Saudis and Russian Federation promising a production increase of up to 1 million barrels per day to limits that have been in place since December of 2016 has the oil markets taking a breath from their upwards march.

For us, there remains the same strategy that we've been following, only now it should become more aggressive: To accumulate cash by jettisoning under-performing Permian shale producers and centering back into those more mature EFS and Bakken E+P's that are less than 50% hedged into the coming year.

USA investment bank Jefferies said the crude market is tight and spare capacity could dwindle to 2 percent of demand in the second half of 2018, its lowest level since at least 1984.

Iran has lashed out at the United States for asking Saudi Arabia to pump more oil to cover a drop in Iranian exports, saying the Organization of the Petroleum Exporting Countries (OPEC) would dismiss the appeal. The Oil market of Russian Federation and Saudi Arabia have recently signalled that they could ease a deal between the 14-member OPEC and other producers to limit output, which has been in place since January 2017.

Headlines on OPEC members' plans for the meeting later this month will lead to volatile market swings, said Tariq Zahir, managing member of Tyche Capital Advisors in NY.

Iran has called on Opec to discuss what it called "illegal" sanctions at the next meeting on June 22, which is due to debate production policies. "I believe that the help of the European Union helps us. the level of our oil exports will not change", Zangeneh said.

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