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Tue, 21st November 2017

Anirudh Sethi Report

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Archives of “Crude” Category

One Way Or Another – Venezuela Will Send Oil Prices Up

In a desperate bid to survive its economic meltdown, Venezuela is lobbying other OPEC members to agree to steeper oil production cuts, a move that would likely lead to higher oil prices.

Venezuelan officials have reached out to their counterparts in Iran, Russia and Saudi Arabia to press them on more collective action, according to Argus Media. If there was enough interest, the next step would be an “extraordinary meeting,” which would weigh the option of cutting deeper.

 The rumors about deeper OPEC cuts have been floating around since June, when oil prices collapsed into the low-$40s. The markets have grown deeply pessimistic about the health of the oil market, and doubt the OPEC cuts will balance the market by the end of the compliance period in March 2018.

But the behind-the-scenes effort from Venezuelan officials is notable, if only because the South American OPEC members was one of the earliest and most aggressive supporters of the original deal to reduce output. In 2016, for months the more powerful members of the cartel rebuffed Venezuelan pleas, but in the end they agreed to reductions in November after oil prices continued to wallow below $50 per barrel.

The deal pushed prices above $50 for a period of time, but after six months of restraint, the market is back in sub-$50 territory.

However, the urgency for higher prices is more acute now for Venezuela. Protests have spread nationwide in the South American nation as the economy contracts at a torrid rate. Violence is becoming more widespread, and the nation is suffering from political gridlock and economic and social disaster.

Over the weekend, the opposition organized an informal referendum, which attracted more than 7 million votes, to oppose anti-democratic moves by the government. The vote demonstrated widespread anger and opposition towards the government’s upcoming effort to consolidate power in a July 30 vote to rewrite the constitution, a move that would weaken competing institutions like the National Assembly. The referendum opposing the July 30 vote was not recognized by the government, but it was a show of force for the opposition.

There is no way out of the downward economic spiral for Venezuela in the short run without significantly higher oil prices.

WTI Crude Sinks After Surprise Crude Inventory Build

WTI has roller-coastered higher since last week’s ‘bullish’ API report and rose today for the 6th of the last 7 days (on Saudi cut hype). While many eyes are on record high shale production, the recent trend in inventory draws remains key but API upset that dream briefly as Crude saw an unexpected build (+1.628mm vs -3.5mm exp). Gasoline and Distillates saw major draws (much bigger than expected) and Cushing saw its first build in 8 weeks.

API

  • Crude +1.628mm (-3.5mm exp)
  • Cushing +608k
  • Gasoline -5.448mm (-1.3mm exp)
  • Distillates -2.888mm

OIL-OPEC Secondary sources say compliance for members dropped to 92% in June

There are a few headlines about the place this morning on compliance rates

Basic gist is that ‘secondary sources’ data used by OPEC show cartel members are pumping more, with compliance with cuts for its members down to 92% in June (from 110% in May)
  • Note, news on this has been doing the rounds since last week, with various numbers bandied about (the compliance rate updated)
  • Last week compliance was being reported around 97%, so the 92% figure is a worsening
Note, secondary-sources data is from external agencies OPEC uses to assess compliance. OPEC uses two sets of figures to monitor output, those supplied by each country & the secondary sources

IEA say recent oil price weakness may lead US shale firms to reassess

International Energy Agency out with their monthly report 13 July

  • output may be gushing but profits are not
  • compliance with OPEC cuts slips to 78% in June vs 95% in May
  • Non-OPEC compliance 82%
  • Algeria, Iraq, UAE and Venezeula pump more than allowed
  • 2017 global oil demand growth forecast revised up by 100k bpd to 1.4mln bpd
  • global oil stocks fell in May to 266mln barrels above 5 year average vs 300 mln in April
  • sees hefty stock draw later in 2017 provided there is strong compliance with OPEC cuts and even if Libya,Nigeria output recovers further
  • call on OPEC crude to rise steadily through 2017 and reach 33.6blb bpd in Q4

IEA highlighting the fragile conditions still prevailing and less confident on oil market rebalancing.

WTI $45.03 near session lows as is Brent at $47.45 on the bearish price news. USDCAD unfazed and trawling along around 1.2750

More from the IEA here

Crude oil inventories for the July 7th week -7564K vs -2450K est.

Prior week draw -6299

The API data last night showed a larger than expected draw of -8133K. So this draw is much bigger than the estimate but it mirrors the draw from the API data.

In the other data:

  • Cushing OK crude -1948K vs -1334K last week
  • Gasoline -1647K vs -534K est
  • Distillates rose 3131K vs 900k est.
In addition to the data, is there is a headline that OPEC has scheduled an extraordinary meeting on July 17th.  There is no further details.
The price of Crude oil traded up to $46.48  but is back down to $46.23 currently.  The low for the day came in at $45.61.

 

WTI Pops After Huge Crude Inventory Drawdown

WTI prices have roller-coastered (generally lower) since last week’s inventory(lower)/production(higher) data back to unchanged but as API printed a massive 8.133mm crude drawdown (vs 2.45mm exp), the biggest since Sept 2016 if DOE confirms, WTI prices quickly jumped higher. Gasoline also saw a bigger than expected draw while Distillates built.

API:

  • Crude -8.133mm (-2.45mm exp) – biggest draw since Sept 2016
  • Cushing -2.028mm – biggest draw since Feb 2014
  • Gasoline -801k (-534k exp)
  • Distillates+2.079mm
 Big drawdowns across the board last week from API and DOE added to in crude and gasoline this week…

A lot of hope today as EIA cut its 2018 crude production forecast (modestly) – “This pull-back in production is kind of wake-up call to people who thought that shale was going to be viable no matter what OPEC did,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, says by phone, adding “If output doesn’t rise as much as previously anticipated, “then it’s time for the bears to start questioning their religion again.”

Notice that WTI was trading at the same level as it was when last week’s API data hit before the print…once the data hit, WTI was bid above $45.50…Deja vu all over again

However, what Flynn and the algos probably missed was EIA’s cut on demand expectations and price outlooks.

Oil hits a session high as OPEC hits 97% compliance in June

Impressive turnaround for crude

For three consecutive days crude has traded below $44 per barrel but it’s rebounded in each day and now it’s trading at a session high, up $68-cents to $45.09.

The gains come as Reuters reports that OPEC compliance with cuts was at 97%. However, Libya and Nigeria, which are exempt, led to a rise in total production to 32.47 mbpd from 32.14 mbpd.

The official numbers are due Wednesday.

IEA says global energy investment in 2016 fell 12% to USD 1.7trln

International Energy Agency out with a report 11 July

  • 2.2% of global GDP
  • 2nd consecutive year of decline
  • investments in electricity surpassed those in oil and gas for the first time ever in 2016
  • oil and gas investment to rebound modestly by 3% in 2017 on US shale
  • China was leading global destination for energy investments in 2016

Says Dr Fatih Birol, the IEA’s Executive Director:

“As the oil and gas industry refocuses on shorter-cycle projects, the need for policymakers to keep an eye on the long-term adequacy of supply is more important. Even with ambitious climate-mitigation goals, current investment activity in oil and gas will have to rise from its current slump.”  

“The good news is that in spite of low energy prices, energy efficiency spending is rising thanks to strong government policies in key markets.”

Full report here