Missile Strike Rocks Oil Market
October 11th, 2019
The news of the morning is that an Iranian oil tanker has been hit by two missiles in the Red Sea. So far this is only being reported by Iran and no independent sources have been able to confirm this event. Iran originally said the missile attack was from Saudi Arabia but has backed off this for now. This has caused a jump in oil prices when the news first hit but the market has eased back off those highs. There appears to be a lot of speculation about whether this attack is legitimate.
The other news of the day is that China and US trade talks are being reported as having made good progress. President Trump gave positive responses to the progress of the talks. Reports are being issued that the US and China have come to a “skinny deal”. This is a step forward but many still questions what are in the details and is this really any progress. There are some indications that China and the US could agree upon a currency deal. President Trump and Chinese Vice Premier Liu He are set to meet today to further discuss trade and markets are hoping that President Trump may hold off on tariff increases that are set to take effect next week.
According to OPEC’s monthly report, Saudi Arabia said its output in September fell by 600,000 bpd on the month to 9.13 million bpd in the wake of attacks on its energy installations. Meanwhile, secondary sources stated that Saudi Arabia’s production was lower, falling by 1.28 million bpd on the month to 8.56 million bpd. In its monthly report, OPEC said its production was down 1.32 million bpd on the month in September at 28.49 million bpd, largely due to the Saudi Attacks. OPEC lowered its forecast for non-OPEC supply growth in 2020 by 50,000 bpd to 2.2 million bpd due to downward revisions of Kazakhstan and Russia. However, OPEC left unchanged its 2020 forecast for global oil demand growth at 1.08 million bpd. It revised its 2020 demand for its crude up by 200,000 bpd to 29.6 million bpd, down 1.2 million bpd from the estimated 2019 level.
In Syria, the Turkish incursion is not expected to directly affect oil production at this time but there is a rise in the risk premium due to these increased fears.
In Ecuador, continued protests are keeping oil fields shut down and caused the state-owned oil company to declare force majeure on its crude exports. Ecuador exported only 315,000 bpd in September but average 392,000 bpd for 2019 thus far. Nearly half of the Ecuador exports go to the US West Coast so this could create some shortages at the West Coast in the short term.
The head of commodities research at Goldman Sachs sees Brent crude oil at $60 per barrel in the mid-term with risks to the downside.
The CEOs of top independent oil traders said global oil prices will likely hold close to current levels well into next year, with Brent averaging in the $50-$60 per barrel range, unless the US-China trade tensions are resolved and fears over a new global recession subside. The head of Trafigura, Jeremey Weir, said “we are bearish in the short term.” His comments were echoed by the CEO of Vitol, Russell Hardy, who stated that “without some resolutions to the trade wars then we remain a little bit bearish, a five handle for us.” The head of Gunvor, Torbjorn Torngvist, said he expected oil prices to remain anchored close to current level next year given market fundamentals. This will mean further pressure on OPEC and its allies to expand their current output deal if they hope to support crude values. S&P Global Platts Analytics expects Brent to end the year at $65-$70 per barrel, as crude stock draws in November and December offset the current bearish market sentiment.