Prices Are Under Pressure as Supply Builds
October 29th, 2019
Crude oil and refined fuel products prices closed lower yesterday after rising to a one month high early in the trading day for both Brent crude oil and WTI crude oil. Brent hit a high of $62.34 and WTI hit a high of $56.92. The selling pressure came from poor economic data out of China again bringing light to possible weak energy demand. The lower close on Monday was a change from four consecutive days of the market being higher on the back of OPEC+ talk of additional production cuts.
Iraq declared a curfew in Baghdad on Monday as anti-government protests in which over 200 people have been killed entered its fourth day. The unrest, driven by discontent over economic hardship and deep-seated corruption, has broken nearly two years of relative stability in Iraq. Parliament passed measures on Monday aimed at placating the protesters, but many said this was too little too late.
The largest banking lenders in the US oil and gas sector are becoming more cautious, cutting their expectations for oil and gas prices that underpin loans in a move expected to put further financial stress on producers. Major banks, including JPMorgan Chase, Wells Fargo and Royal Bank of Canada have as part of regular biannual reviews, cut their estimated values for oil-and-gas companies’ reserves, which serve as the basis for those companies to receive reserve-based loans. While the size of the reserve-based loans market is unclear, it is estimated that a few hundred companies take such loans, with the cumulative size in the billions of dollars. Eight sources indicated larger banks have set their price decks, the industry term for the value they ascribe to hydrocarbons behind the reserve-based loans, with oil between $46 and $51 per barrel for the next five years.
Saudi Arabia’s Energy Minister, Price Abdulaziz Bin Salman, and his US counterpart, Rick Perry, discussed the oil markets and coordinating production between OPEC and non-OPEC producers. They stated that the two countries would work together to ensure the security of the global energy supply.
Energy prices under some selling pressure today from the outlook that inventories could again show a build in crude stocks. Some analysts are looking for a big build at Cushing, Ok which could put some selling pressure on the market.
Russia making comments that it is still too early to make any decision about more production cuts also supportive to the bears efforts today.