Latest Market Commentary

April 25, 2017

The market was selling off again yesterday as the doubts continue to grow about whether OPEC and Russia will continue crude oil cuts and more importantly if these cuts are bringing the world oil markets into balance.

Prices were up yesterday in the early morning trading as France’s first round of the presidential election was looking less likely that they would leave the European Union. The US dollar was also trading lower early yesterday also helping to support energy prices.

The continued rise in US shale crude oil production has also been a concern for the market as the battle between how much OPEC and non-OPEC could take out and how much US shale could put in the market has been a big factor traders have been trying to figure out to help determine when the market would be rebalanced. This battle is still ongoing but the current sentiment is leaning toward OPEC’s resolve faltering and US shale production continuing to rise.

Genscape reports that crude stocks in Cushing, Oklahoma declined by 1.1 million barrels for the week ended April 21.

Iran’s Oil Minister said it is unrealistic to expect oil at $90 per barrel.

According to comments by Russian officials and details of investment plans released by oil firms, Russia’s oil output could increase to its highest level in 30 years, if OPEC and non-OPEC producers do no extend the output cuts into the second half of the year. Separately, Russian Energy Minister Alexander Novak, said Russia want to see more analysis of the global oil market and will wait for OPEC’s meeting next month before deciding whether to back an extension to an oil supply reduction deal.

Of course as is the case with opinions about the market there are those that are still calling for a rebalancing later in the year, with most assuming OPEC will do something to extend cuts.

Societe Generale reported that OPEC will rollover its crude supply target of 32 million bpd in the second half of the year. This will result in global draws of 1 million bpd over the same period.

Citi Research analysts said weakness in oil prices should reverse heading into the third quarter as the market rebalances, which should prompt new investments in the crude complex. Despite some nearby physical market softness that will likely keep Brent sport prices in its current low $50 range over the next month or so, US crude markets look fairly constructive from now through the summer. It said increased US refinery runs, Canadian disruptions and new infrastructure construction during the second quarter should tighten supplies.

A recent Reuters article about the record amounts of crude being shipped doesn’t rally match with production cuts and strong compliance. Global oil shipments by tanker are at record high in April, according to data compiled by Thomson Reuters Supply Chain and Commodity forecasts. As of Tuesday, the data showed that an average of 50.3 million bpd of crude is being shipped in April, up from the previous record of 46.1 million bpd in January. The data excludes crude moved by pipelines, but it’s extremely unlikely that pipelines supplies have been cut by more than seaborne cargoes have increased. The data also shows that Saudi Arabia, which undertook to make the largest output cut among those producer’s party to November deal, is actually increasing tanker shipments in recent months, to levels well above those that prevailed late last year. The kingdom is expected to ship 8.29 million bpd in April, up from 7.94 million bpd in March, 7.73 million bpd in February and 7.83 million bpd in January.

Tim Danze, MFA Oil Company Hedging Manager