Latest Market Commentary

March 27, 2017

The OPEC compliance committee meet over the weekend and the basic idea that came out of the meeting is that that some type of extension will need to be done in order to get global supplies back to the five year average but how to get cooperation and compliance is the huge question. They committee is going to monitor supply and demand for another month. After that month when the committee meets again in April they will offer a recommendation. The next official OPEC meeting is May 25 and that would be when any kind of vote could take place.

Here are a few of the comments about the meeting: OPEC Secretary General Mohammed Barkindo noted that while OECD stocks are 282 million barrels above the five year average, outside the US, the global trend of destocking has been broadly on track.

Kuwait’s Oil Minister, Essam al-Marzouq, told reporters that the first and second quarters of the year typically have the lowest demand, explaining why stocks have not remained tight. The driving season will start in the third quarter, he told reporters. We expect the stock overhang to be withdraw starting from the third quarter, hopefully be the end of the yea we should see a rebalancing of the market.

The Baker Hughes rig count released on Friday added some bearishness to prices as the reports said that 21 rigs were adding in the US putting the total at 652 rigs. The rig count has risen by 322 rigs since July 1, 2016. On the other had Canada has seen rigs decline the last couple of weeks and this past week the rig count was down by 79 to a total of 70 rigs.

The world’s largest independent oil trader, Vitol, saw their annual traded volume increased by 16% to a new record high in 2016. The company said it traded more gasoline and diesel in markets such as the US and Australia.

Barclays said the price decline in Brent and WTI is likely temporary correction. They forecast prices for Brent to average $62 per barrel in the second quarter and for WTI to average $60 per barrel.

Energy Aspects chief oil market analyst, Amrita Sen, said oil should rise above $60 per barrel in the second half if the OPEC deal is extended. The analyst said if OPEC and non-OPEC cuts ae successful in reducing oil inventories, prices could rise by $5 to $10 per barrel and move the forward curve into backwardation.

The Commitment of Traders report showed that managed money fund in the week ending March 21 cut their net long position for the fourth consecutive week, on a combined NYMEX and ICE basis. The funds cut their net long position by 33,273 contracts to 281,804 contracts.

The market is still in a pretty tight range this morning as it has been the last few days and the market is looking for some fundamental data supporting tighter supplies or stronger demand. The market from a technical perspective is still leaning to test lower but the market is near critical levels of support so it is likely to be balled up and congested in this area for a while until some news breaks.

Tim Danze, MFA Oil Company Hedging Manager