Tag Archives: oil

No. 1 Trader Says Oil Is Set for a Bumpy Ride

Bloomberg, Feb 5, 2017

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* Brent crude may trade between $52 and $62 a barrel this year
* U.S. policy, output deal uncertainty can spur market turmoil

Donald Trump and global crude producers are set to take prices on a bumpy ride this year, according to the world’s biggest independent oil trader.

As investors are kept on tenterhooks over U.S. policies and whether OPEC and other nations will curb output as pledged, global benchmark Brent crude may vacillate between $52 and $62 a barrel, according to Kho Hui Meng, the head of the Asian arm of Vitol Group. The market’s structure could also shift in the third quarter, with near-term cargoes turning costlier than those for later delivery, flipping from the other way around.

“I think this market is going to be very volatile,” Kho, the president of Vitol Asia Pte., said in an interview in Singapore. “People are worrying about U.S. policy. With the new administration, a lot of things are being speculated. So we can’t predict the future, we just have to wait.”

The sentiment reflects the uncertainty gripping markets amid Trump’s ascent, with traders of everything from currencies to metals and stocks trying to decipher the effects of measures by the leader of the world’s biggest economy. The oil market has been ruffled by the prospect of more geopolitical tensions on his harder line on major producer Iran. He’s also mooted a border tax on imports, which Goldman Sachs Group Inc. says had a low chance of being introduced but could trigger an oil selloff if implemented.

 

Trading companies such as Vitol and rivals including Trafigura Group and Glencore Plc could reap rewards from volatility. Vitol’s $1.6 billion in earnings in 2015 were boosted as it profited from price swings in the energy market. It posted a 42 percent decline in first-half 2016 profit amid fewer opportunities to benefit from price changes.

The company, which is formally incorporated in Rotterdam but operates from locations including Geneva, London, Singapore and Houston, has experienced strong growth over the last 20 years on the back of expanding oil trade, large price swings and, more recently, investment in storage and refining. In 1995, Vitol earned just a little over $20 million.

Oil traders often look to take advantage of a market structure known as contango — where future prices are higher than current levels, allowing investors to buy oil cheap, store it in tanks or ships and lock in a profit for a later sale. But with global producers cutting output, the market may be poised to go into backwardation, when prompt crude is costlier than later cargoes.

The structure is now “quite flat so people are still watching,” Vitol’s Kho said. “Once the backwardation comes in, which we’re not there yet, then people begin to look at the viability of the floating storages and ultimately they’ll come out.”

Output Curbs

Oil has fluctuated above $50 a barrel since a December deal between the Organization of Petroleum Exporting Countries and other producers to trim supply by as much as 1.8 million barrels a day to ease a global glut. While OPEC members including Saudi Arabia are implementing their share of cuts and Russia says it’s ahead of schedule on its reduction, investors are wary of America pumping more. The revival of U.S. drilling has entered into its ninth month, extending the biggest surge of oil rigs in more than four years.

Brent for April settlement advanced 11 cents, or 0.2 percent, to $56.92 a barrel on the London-based ICE Futures Europe exchange by 4:14 p.m. Singapore time. U.S. benchmark West Texas Intermediate for March delivery was up 16 cents at $53.99 on the New York Mercantile Exchange.

“People also recognize that as oil tightens up and the price begins to rise, shale oil in the U.S. will start to come out again,” Kho said. “We’re seeing signs of that but it isn’t overwhelming yet.”

With a majority of the output reductions coming from Middle East nations, the regional Dubai crude benchmark has turned costlier than WTI and strengthened relative to Brent. That’s opened the window for arbitrage cargoes to flow into Asia from regions including the North Sea and West Africa.

While the stream of such oil from the U.S. and Europe to Asia won’t probably be the norm, it will continue to be an opportunistic trade in 2017, Kho said. Middle Eastern crude will remain the “base flow” for Asian refiners, in addition to West African supplies. Shipments from the U.S. and North Sea may not be as common going forward as the arbitrage window can open and close with market volatility, he said.

In the world of fuels, the lack of new large-scale refineries coming online globally in the near term could tighten the market for distilled products, Kho said. That’s especially pertinent to diesel, which makes up the biggest portion of output from processing units.

“Diesel has gone through a rough time for a number of years, but probably will turn to come back,” said Kho. This would strengthen the spread between diesel and fuel oil, ahead of the implementation of new International Maritime Organization standards that could spur ships to switch to cleaner products such as ultra-low-sulfur diesel. Oil-product markets are currently in a “sweet spot,” backed by seasonal winter demand and refinery outages, according to Kho.

The direction of the crude market, meanwhile, may hinge on the effects of the Trump administration’s policies.

Investors and traders are “waiting for a signal from the U.S. because this is the biggest equation unknown,” Kho said. “It’s the function of the global economy. If there’s nothing drastic from the U.S., it will be quite good this year.”

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Saudis seem serious about stemming crude supplies

RT, Dec 9, 2016

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Saudi Aramco has told clients it will cut January crude shipments in line with the OPEC-Russia deal of November 30, Bloomberg reports. This may be a sign Saudi Arabia will make good on its promise of the first coordinated production cut in eight years.

Saudi Aramco is exercising operational tolerance and reducing nominations as expected,” Amrita Sen, chief oil market analyst at Energy Aspects in London told Bloomberg.

“Given the Saudis are targeting inventory reductions, the US and Europe may be more of a target than Asia,” she added.

According to PIRA Energy Group chairman Gary Ross, buyers of Saudi oil have been informed that Riyadh wants to cut its production by 486,000 barrels per day (bpd) to just over 10 million.

OPEC and non-members are meeting on Saturday to fortify the deal reached at the end of last month. Major non-OPEC producer Azerbaijan has said it will come to the table with its own output reduction plan.

The deal envisages a 1.2 million bpd cut from OPEC, with Saudi Arabia making the biggest reduction. Non-OPEC producers will cut production by 600,000 bpd, with half of the contribution coming from Russia.

The market was optimistic about the Saturday meeting, and oil prices were up on Friday. Brent crude was trading 41 cents higher at over $54 per barrel, while US benchmark WTI was up 57 cents, trading above $51.

“There are hopes for deeper cuts as non-OPEC nations are set to cooperate in curbing production,” said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting, as quoted by Reuters.

“But it is still uncertain whether their cuts would reach 600,000 bpd, which is providing limited support to oil gains,” the economist added.

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Oil continues rally as Russia joins OPEC production cut

RT, Dec 1, 2016

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Crude oil prices extended gains on Thursday on news the Organization of the Petroleum Exporting Countries (OPEC) signed its first coordinated production cut in eight years and the biggest non-member producer Russia agreed to join.

While OPEC pledged to slash its output by 1.2 million barrels per day (bpd) to 32.5 million, the deal also envisages a 600,000 bpd cut from producers outside the cartel, and Russia will contribute to half of it.

“This is a very important step for the global oil industry, aimed at restoring a healthy balance of supply and demand. It will keep the industry attractive for investments in the long term,” said Russian Energy Minister Aleksandr Novak.

“We are optimistic about the agreement reached today and believe it to be a historically important event,” said the Russian minister.

Oil prices were rising all day ahead of the November 30 announcement and continued to rally on Thursday, gaining over nine percent in two days.

Brent crude was trading at above $52 per barrel, while US West Texas Intermediate was seen around $50 per barrel.

“OPEC has delivered an agreement. Bulls got as much as could be hoped for…For the time being, oil prices have received a huge support,” said Jason Gammel of US investment bank Jefferies, as quoted by Reuters.

Barclays has expressed skepticism, as the agreement only caps production, not exports.

“The outcome is consistent with… what OPEC production levels were expected to be in 2017 irrespective of the deal reached,” said the British bank.

“We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the US,” said Goldman Sachs.

Production in the US has grown by more than three percent this year, reaching a daily output of 8.7 million barrels.

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Iran Said to Assess 1.1 Million Barrel-a-Day Collective OPEC Cut

Bloomberg, Nov 26, 2016

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* OPEC proposes 600,000 barrels a day cut for non-OPEC producers
* Iran hasn’t announced commitment to reduce its own production

Iran is assessing a proposal for a collective OPEC output cut, but hasn’t announced any commitment to reduce its own production as the group tries to end disagreements about how to share the burden of supply cuts ahead of a meeting in Vienna.

Algerian Energy Minister Noureddine Boutarfa presented a proposal for an OPEC cut of 1.1 million barrels a day during a meeting with his Iranian counterpart Bijan Namdar Zanganeh in Tehran on Saturday, according to an Iranian oil ministry official. OPEC is also proposing a 600,000 barrel a day output cut by non-OPEC producers, the official said.

The two ministers discussed each country’s share of the proposed cut and Zanganeh said Iran will assess the proposal and discuss it further at the Vienna meeting on Nov. 30, the official said. Zanganeh, who didn’t comment on Iran’s position about cutting its own production, expressed optimism about the OPEC meeting next week, the official said.

The OPEC talks indicate that the group “can arrive at a lasting agreement on its output and market management,” Zanganeh said after the meeting, according to the Oil Ministry’s official news service, Shana. “If we reach an agreement, I am optimistic that prices will rise and the global economy requires such conditions.”

Shuttle Diplomacy

Boutarfa, the architect of the Algiers crude supply agreement in September, is on a shuttle diplomacy mission to try to resolve differences blocking the OPEC deal, particularly the question of whether Iran and Iraq are willing to cut production. He is also due to meet with the Iraqi oil minister next week.

An oil production cut would help the oil price to rise to $55-$60 a barrel, Boutarfa said, according to the Iranian oil ministry official. If no agreement is reached in Vienna next week, the price may remain under $50 a barrel, he said.

All OPEC members accepted the decisions adopted in Algiers, which proposed that the group’s production be reduced to a range of 32.5 million barrels a day and 33 million barrels, Zanganeh said, according to Shana. “Right now the debate revolves around how to divide” the production cuts, he said.

In a surprise move, Saudi Arabia pulled out of talks planned for Monday with non-OPEC producers including Russia because it wants to secure an OPEC deal first. The meeting was later canceled and OPEC members called instead for internal talks to try to resolve their own differences ahead of the ministerial meeting on Nov. 30.

The setback suggests that Saudi Arabia remains split from its two biggest Middle Eastern rivals at the Organization of Petroleum Exporting Countries. Iran insists it should be allowed to restore output to pre-sanctions levels, while it remains unclear if Iraq is still disputing the OPEC supply estimates that would provide the basis for any cuts. With less than a week until the crucial ministerial meeting, the refusal of just one major producer to participate could scuttle the whole of the agreement reached in September in Algiers.

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Oil’s next stop is $60 – here’s why

CNBC, Oct 19, 2016

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Oil is set to surge even higher, according to one technician who sees crude rallying on thanks to his chart.

Oil climbed 3 percent on Wednesday, hitting a 15-month high unseen since July of last year. But Rich Ross of Evercore ISI doesn’t believe that the crude run is done.

On a weekly chart of crude, Ross noted that the commodity is testing the neckline of a head and shoulders bottom around $51 or $52. Technicians often view these patterns as a bullish reversal in trend. And as he sees it, any further breakout would “certainly set the stage for more upside in the short to intermediate term” that could lead even higher, Ross explained Wednesday on CNBC’s “Trading Nation.”

Just how high can oil go? According to Ross, another neckline can be formed by extending crude’s highs in May 2015, when oil hit $60. In other words, Ross believes that oil could rise another 15 percent from current levels, leaving $60 crude a very real possibility.

Oil continued to hover just below $52 on Wednesday. Crude is currently up about 40 percent year to date.

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