U.S. oil stumbled below $30 for the first time in 12 years to levels that threaten the survival of many U.S. shale firms, spur more belt-tightening by oil majors and spell more pain for crude-producing nations and regions.
A seven-day losing streak fueled by concerns about a continued supply glut and fragile demand from China, the world's No. 2 consumer, wiped out almost a fifth of crude prices CLc1 this year and 70 percent since mid-2014.
Traders have all but given up attempting to predict where the new-year rout will end, with momentum-driven dealing and overwhelmingly bearish sentiment engulfing the market. Some analysts warned of $20 a barrel; Standard Chartered said fund selling may not relent until it reaches $10.
NO BOTTOM
The prospect of a protracted slump has fueled expectations of a flurry of asset sales deals that could be possibly financed by private equity or hedge fund investors and law firms and banks have been beefing up their restructuring teams.
The latest slide, however, quashed hopes that the market may have already found its bottom and private equity investors are expected to hold off with buying any assets with action expected to shift to bankruptcy courts.
The U.S. West Texas Intermediate crude (WTI) CLc1 benchmark briefly touched a low of $29.93, which was last seen in December 2003.
Gas price fell to 47 cents per gallon at one Michigan site An apparent gas price war in one northern Michigan location briefly sent prices to a back-to-the-'60s low — 47 cents a gallon — according to GasBuddy and area TV stations.
Lucky motorists in Houghton Lake, Mich., were able to fuel up with the ultra-low-price regular gas Sunday at the Beacon and Bridge Market. Prices fluctuated, but at one point dropped to 77 cents a gallon, according to GasBuddy and area TV stations. Later, they briefly hit a low of 47 cents a gallon according to GasBuddy and a staffer at the location.
The cost, well below the $1.89-a-gallon national price, appeared to stem from local competition. A Marathon gas station also located in Houghton Lake also sold fuel for 95 cents a gallon on Sunday, GasBuddy reported.
WTI oil soars 9% to settle at a two-week high ‘Mad scramble’ Friday but analysts doubtful gains will last
Oil prices and world stock markets jumped on Friday, providing some relief to bruised investors as frigid weather across the United States and Europe boosted energy demand.
Brent crude oil, which tumbled in recent weeks on worries about oversupply, settled 10 percent higher and above $32 a barrel in one of the biggest daily rallies ever. Traders cashing in short positions lifted prices along with the higher short-term demand.
The surge in oil prices continues with WTI crude settling at a two-week high above $32 a barrel, but analysts don’t expect the gains to last.
Oil futures jumped 9% on Friday to settle at their highest level in two weeks, rebounding from oversold conditions as traders bet that major central banks will announce fresh stimulus measures that may improve sentiment for the beleaguered commodity.
“Today’s gains by oil are truly spectacular, and the retaking of $30 is a positive,” said Colin Cieszynski, chief market strategist at CMC Markets.
March West Texas Intermediate crude added $2.66, or 9%, to settle at $32.19 a barrel on the New York Mercantile Exchange. That was the biggest one-day percentage gain since Aug. 27 and highest settlement since Jan. 8, according to FactSet data.
For the week, WTI prices gained 9.4% based on last Friday’s closing level for the February contract, which expired Wednesday. The March contract itself was up 5.9% from its settlement a week ago.
Brent crude , the global oil benchmark, rose $2.93, or 10%, to $32.18 a barrel on London’s ICE Futures exchange, set for a weekly gain of nearly 9%.
It was a “mad scramble” Friday to “get back on the bullish bandwagon,” said Cieszynski.
But the “huge pop feels more like a bear-market rally on short covering than a proper base forming. There hasn’t been any change, the price war continues and is likely to continue for a long time meaning that we could still retest or break the recent lows eventually,” he said.
Other analysts also voiced doubts that the price strength will last.
“There is really no fundamental change that can justify this two-day surge in prices,” Robbie Fraser, commodity analyst at Schneider Electric, told MarketWatch. “More than anything, I think we’re seeing a short-covering rally and the impact of unusually high volatility throughout global markets this year.”
However, “until we see meaningful production cuts from key producers, particularly the U.S., I’m not going to feel confident that oil prices have found their bottom,” he said.
European Central Bank President Mario Draghi hinted Thursday at more easing measures amid renewed pressure on inflation in European economies from falling oil prices. Traders were also speculating that Japan’s central bank might increase its asset-purchasing program at its end-of-January meeting. Global bourses bounced on the stimulus talk.
Oil prices plunge again to 29.8 as Iraq confirms record output
Oil prices fell 3pc yesterday as Iraq announced record-high oil production feeding into a heavily oversupplied market, wiping out much of the gains made in one of the biggest-ever daily rallies last week.
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Brent Crude, the global benchmark, was down 90 cents at $31.28 a barrel by mid afternoon yesterday, losing 2.8pc from its closing price on Friday, when Brent surged 10pc.
US crude traded $1.07 lower at $31.12 a barrel.
The losses came despite news that oil producer group OPEC was evaluating holding an extraordinary meeting. Qatar's energy minister said a request for such a gathering was being discussed.
Oil prices remain near 12-year lows as global supply continues to outstrip demand.
Iraq's oil ministry told Reuters yesterday that output reached a record high in December. Its fields in the central and southern regions produced as much as 4.13 million barrels a day, the government said.
After 40-year ban, U.S. starts exporting crude oil America is wasting little time getting back into the oil exporting business.
Just weeks after Congress lifted a 40-year ban on exporting oil, the first shipments of the black stuff left U.S. ports for Europe.
The first freely-traded shipments of U.S. crude are symbolic of the country's newfound role as a leading producer of oil. America's entry into the world market can also be viewed with relief by those worried about potential supply disruptions. After all, many big oil producers are located in volatile parts of the world susceptible to geopolitical shocks.
America officially banned exports in 1975. It came two years after an OPEC oil embargo that banned oil sales to the U.S. had sent gas prices skyrocketing. Newspaper photographs of long lines of cars outside of gas stations became a common and worrisome image.
Fast forward 40 years and the world has changed drastically, with booming U.S. oil production from the shale revolution creating an epic supply glut that recently sent oil prices below $30 a barrel.
Some of that American oil is now finding a home overseas. On New Year's Eve ConocoPhillips (COP) and NuStar Energy (NS) announced what they said was the first exports of U.S.-produced light crude oil since the ban was lifted. The companies shipped oil pumped from the Eagle Ford Shale of Texas.
Other shipments believed to be containing oil pumped from the U.S. have left for destinations in Europe in recent weeks as well.
Just a year ago American oil would have been a hot seller on the global stage. It was trading about $12 a barrel cheaper than Brent crude, the global standard. That means European buyers would have been willing to front the heavy costs involved with shipping oil across the Atlantic.
But that's changed. U.S. oil prices are now just $1 or $2 a barrel cheaper than Brent.
"The economics don't entirely work for U.S. crude to be traded everywhere in the world," said Brian Scheid, a senior editor at Platts.
There are also logistical hurdles keeping U.S. oil from straying too far from home. Due to the longstanding export ban, America's Gulf Coast doesn't currently have the equipment in place needed to load the giant supertankers that other countries typically use to ship oil long distances, according to Nilofar Saidi, a crude oil market analyst at ClipperData. Smaller ships can be used on voyages to Latin America and Europe, but aren't ideal for far-flung places like East Asia.
Oil supply* (in green) remains much higher than demand (yellow) — about 1.5 million barrels per day higher — with the excess getting saved for later in stockpiles. And according to the IEA, that glut is currently expected to persist for the rest of 2016: "Unless something changes, the oil market could drown in over-supply."
This wasn't always the case. Between 2010 and 2014, as you can see above, oil demand was soaring around the world, as countries recovered from the financial crisis but global production was struggling to keep up. Many older oil fields were stagnating. Conflicts in places like Libya and Iraq were restricting supply. Countries had to draw down their stockpiles, and prices soared to around $100 per barrel.
Those high prices, however, spurred drillers in the United States to use innovative hydraulic fracturing and horizontal drilling techniques to unlock vast quantities of oil from shale formations in places like North Dakota and Texas. It's hard to overstate the impact of the fracking boom: US crude oil production has nearly doubled since 2010.
Eventually, supply caught up with demand — and then surpassed it. That's when the crash came.
By mid-2014, global demand was starting to slow down. Europe was still reeling from the eurozone mess. China's economy was starting to stumble. But the United States continued to produce more and more oil. Iraq and Libya were also starting to bring more production back online. So prices began sliding, down to $70 per barrel.
At that point, many people expected Saudi Arabia and other oil producers in OPEC to cut back on their own production to prop up prices, as they have in the past. (Conventional wisdom had held that Saudi Arabia needed $100 per barrel oil to balance its budget.)
Surprisingly, that didn't happen. Saudi Arabia decided to increase production in order to maintain its market share, hoping that the subsequent fall in oil prices would crush US frackers, who require higher prices to stay profitable.
Ever since Saudi Arabia's decision to maintain output in late 2014, prices have kept tumbling and tumbling — to $50 per barrel, then $40, then $30 — largely because supply has remained strong and demand has been weaker than expected.
US drillers turned out to be far more adaptable to low oil prices than the Saudis thought, as companies cut costs and boosted productivity in order to keep the oil flowing. (US production has finally stopped growing over the past few months, but the decline has been far less severe than originally predicted.) Iraq has nearly doubled production since 2014 — to more than 4 million barrels per day — as it recovers from conflict. Thanks to the nuclear deal with the US, Iran will start exporting more oil this year as sanctions are lifted, offsetting declines elsewhere.
In the meantime, major developing economies like China, Russia, and Brazil remain mired in a slump, putting a damper on oil consumption. An unusually mild winter helped suppress demand for heating oil. And a stronger dollar means that some countries now have to pay more for crude imports, which further limits consumption.
That's the basic story. As long as supply far outstrips demand, oil prices will stay relatively low.
Cratering prices are having all sorts of ripple effects around the world. Car owners in places like the United States, Europe, and Japan are suddenly paying way less for gasoline, which means they have more money to spend on other things. (Arguably, low prices have helped juice the US economy this past year.) SUVs and gas guzzlers are coming back in style.
On the flip side, crude producers like Saudi Arabia and Russia are struggling to balance their budgets and suffering from a major revenue crunch. Oil companies in the United States and elsewhere are watching profits evaporate. Banks that financed the US shale boom are starting to reel from heavy losses. It's a big deal all around.
In January, the IEA pointed out that prices could easily slide lower this year if Iran ramps up production faster than expected. "In a scenario whereby Iran adds 600 kb/d to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 mb/d in the first half of 2016. … So the answer to our question is an emphatic yes. It could go lower."
Ultimately, the supply and demand dynamic is the thing to keep an eye on. And expectations matter a lot here. Whenever new data shows an unexpected boost in oil production or an unexpected drop in oil demand, prices tend to go down. Conversely, a surprise drop in supply or a surprise surge in demand will push prices back up.
So if, say, the cold war between Saudi Arabia and Iran heats up and somehow leads to disruptions that crimp production, prices could rise. (So far, that hasn't happened.) If low prices are harder for the US shale industry to handle than anyone thought, that could cause prices to rise even higher. If China's economy suddenly rebounds unexpectedly, that could have a similar effect. Or maybe Iran will do something that causes EU and US oil sanctions to snap back into place. Alternatively, perhaps the supply glut — and hence low prices — will persist indefinitely. It's a guessing game, and there are lots of plausible guesses.
A new global oil deal could draw lessons from 1998 After a year of secret diplomacy and hushed-up private talks around the world, OPEC's mighty Saudi Arabia and rival Venezuela were persuaded to cut a deal by non-OPEC Mexico which overcame mutual acrimony and led to a much-needed rise in oil prices.
It was 1998, trust had long broken down within the Organization of the Petroleum Exporting Countries and it took outside mediation as a last resort to stop the squabbling to clinch deals at secret meetings in Riyadh, Madrid and Miami.
Now, with oil prices touching their lowest level since 2003, OPEC officials and deal brokers are looking back nearly two decades and asking whether a behind-the-scenes deal to curb oil output between OPEC and non-OPEC Russia could be struck.
Some see OPEC rifts as insurmountable and Russia as a wild card that cannot be trusted, but others say economic necessity to boost oil revenue could overcome acrimony and distrust and lead to a global deal to cut supply and mop up the glut.
There are plenty of reasons, however, to dispel optimism.
Unlike in 1998, the challenge goes beyond rebuilding bridges between just two OPEC producers.
It pitches the interests of Saudi Arabia alongside fast-rising OPEC producers Iran and Iraq as well as non-OPEC Russia, the world's largest oil nation. All four are involved in conflict in the Middle East but also desperately need money to keep their oil-dependent economies afloat and meet social costs.
"The 1997/98 deal brokered between Saudi, Venezuela and Mexico took over a year to negotiate and it was touch and go as to whether it would get done or not," said veteran OPEC-watcher Yasser Elguindi of Medley Global Advisors.
But low prices are making producers desperate. Prices sank to below $30 per barrel this year from as high as $115 a barrel just 18 months ago due to one of the worst oil gluts in history.
PERFECT STORM
This perfect storm was due to a boom in the extraction of oil from shale rock in the United States and a decision by the Saudi ruling elite to ramp up crude supply to regain market share from higher-cost producers.
Saudi Arabia has pushed its output to record highs over the past year above 10 million barrels per day, almost equal to Russia. Iraq also raised production sharply above four million bpd over the past months as foreign investment in oil fields paid dividends. Iraq expects to raise output further in 2016.
Meanwhile, Iran says the removal of European sanctions in January should allow it to claw back oil production and a deal with OPEC is unacceptable until output reaches four million bpd.
"You cannot have a deal with non-OPEC, until you achieve a credible OPEC framework which at the moment is not possible because of Iraq and Iran. Until there can be some framework between Iran, Saudi and Iraq, all this non-OPEC talk is just noise," said Elguindi.
Saudi Arabia's Oil Minister Ali al-Naimi, who has been in office since 1995, has said the kingdom would join cuts if key OPEC and non-OPEC players cooperated.
But insiders say, Saudi Arabia and it Gulf allies Kuwait, Qatar and the United Arab Emirates are all deeply sceptical that a workable consensus can be reached. "Iran and Iraq remain the main challenges inside OPEC and Russia won't agree to a cut and is not to be trusted," a senior Gulf OPEC delegate told Reuters.
CHANGE IN DYNAMIC
In the past month, however, all parties involved have sent signals suggesting the world oil dynamic may be changing.
Iran's main oil export official, Mohsen Qamsari, said in January he did not want a price war and might increase shipments gradually to avoid hurting world prices.
And Iraqi Oil Minister Adel Abdul Mahdi also said his country would support an extraordinary OPEC meeting if a joint cut with non-OPEC could be agreed beforehand.
"It is useless to go to a meeting without deciding up front. We said 'yes' if others are willing to go but we have to decide before. Otherwise this will backfire on us," he said.
The statements by Iran and Iraq coincided with a change of rhetoric from Russia where the head of its pipeline monopoly and close ally of President Vladimir Putin, Nikolai Tokarev, said joint action was possible to halt slumping prices.
For years, Russian officials said oil production cuts were technically difficult after an ill-fated deal with OPEC in 2001, when Moscow agreed to cooperate but raised exports instead. It was this that created the mistrust that exists today.
But back then Putin was only at the start of his first presidential term and had little control of the oil industry, split between various oligarchs following the chaotic privatisation after the collapse of the Soviet Union.
Fast forward 15 years, and the oil industry is mostly owned by the Kremlin and Putin has almost absolute power.
"You have to take this seriously now. Key will be if Russia can deliver," said OPEC watcher and founder of U.S.-based Pira Group Gary Ross, who was involved in the 2001 Russia-OPEC talks.
Putin and his ally, head of Kremlin oil major Rosneft , Igor Sechin, have yet to speak about the recent talk of a joint move with OPEC.
But Sechin in the past said he would not support cooperation by Russia, where one popular conspiracy theory maintains that the low oil prices of the 1980s were orchestrated by Saudi Arabia and the United States to undermine the Soviet Union. Sechin has also said OPEC had "lost its teeth".
A year ago, Putin said it was possible that the current price crash was orchestrated in the same way as the crash of the 1980s, which effectively led to a collapse of the Soviet Union - a huge tragedy, according to Putin.
"There is a lot of talk today about why it is happening. Maybe it is a Saudi-U.S. plot to punish Iran, or put pressure on the Russian economy or Venezuela," Putin said back then.
But with the Russian rouble sinking to a record low and a parliamentary election this year and a presidential election in 2018, pressure is rising on the Kremlin to protect state revenues and limit public discontent.
"GRAND BARGAIN"
Russia's latest rhetoric has left OPEC watchers and Kremlinologists guessing if it is just a verbal intervention to lift oil prices or whether it is part of a real deal for Putin, which may also involve a compromise with Saudi Arabia over Syria or indeed any other "Grand Bargain".
Putin has dispatched heavyweight veteran foreign minister Sergei Lavrov to the Middle East this week. Lavrov, who has almost never spoken about oil, will travel to Oman and the UAE to discuss the oil market.
Meanwhile, Venezuelan Oil Minister Eulogio Del Pino will visit Russia, Qatar, Iran and Saudi Arabia this week to drum up support for a joint cut in oil production.
And just like in 1998, behind-the-scene talks are gathering pace. When Putin met the Emir of Qatar last month in Moscow, oil was on the agenda, according to a senior source in the Gulf.
And just as in 1998 and 1999, when it took two years and many secret meetings in Miami, Madrid, the Hague, Amsterdam and Riyadh to clinch two decisive supply cuts, the process in 2016 could be equally painful.
The head of Kremlin-backed Russian Direct Investment Fund, Kirill Dmitriyev, said a deal between Russia and OPEC was possible but at the right time, "maybe within a year", when the markets rebalance and it became easier to reach agreements.
Goldman Sachs, which is bearish on oil, said it believes cooperation between OPEC and Russia would be "highly unlikely" and also self-defeating as higher prices would bring shelved output, including in the United States, back onto the market.
BP reports worst annual loss in at least 20 years, cuts more jobs
BP (BP.L) on Tuesday reported its worst annual loss in at least 20 years and thousands more job cuts as the British oil and gas company grappled with a collapse in oil prices.
The energy company reported an annual loss of $6.5 billion for 2015, even worse than its 2010 results when it counted the costs of the deadly Gulf of Mexico oil spill.
BP said it would cut 3,000 jobs in its downstream unit by the end of 2017 on top of 4,000 cuts already announced in oil and gas production as part of a $2.5 billion restructuring program announced last year.
"We are continuing to move rapidly to adapt and rebalance BP for the changing environment," Chief Executive Bob Dudley said in a statement.
Fourth-quarter underlying replacement cost profit, BP's definition of net income, came in at $196 million, significantly lower than analysts' expectations of $730 million.
Fourth-quarter impairments reached $2.6 billion as its oil and gas production division was hit by weak energy prices, including fields in the Gulf of Mexico, the U.S. Utica shale acreage in Ohio and Libya.
BP's results are the latest in a round of weak fourth-quarter earnings in the sector. Chevron (CVX.N), the No. 2 U.S. producer, last week reported its first quarterly loss in more than 13 years, while Royal Dutch Shell was expected to report a near halving of profits.
Benchmark Brent oil prices averaged $43 a barrel in the fourth quarter of 2015, down from $76 a year earlier.
Saudi, Venezuela talk of OPEC, non-OPEC cooperation to stabilize oil market: SPA
Saudi Arabia's oil minister Ali al-Naimi discussed cooperation between OPEC members and other oil producers to stabilize the global oil market with his Venezuelan counterpart on Sunday, state news agency SPA reported.
Venezuela's Oil Minister Eulogio Del Pino, who is on a tour of oil producers to lobby for action to prop up prices, said his meeting with Naimi was "productive", his ministry reported.
Cash-strapped OPEC member Venezuela has been calling for an emergency meeting of producers to discuss steps to prop up prices, which are close to their lowest since 2003.
The prospect of supply restraint by the Organization of the Petroleum Exporting Countries and rivals helped oil prices LCOc1 rise above $34 a barrel on Friday from a 12-year low close to $27 last month, despite widespread scepticism that a deal will happen.
"It was a successful meeting and (conducted) in a positive atmosphere," SPA cited Naimi as saying.
Both ministers discussed Del Pino's visits to other oil producers and the outcome of his "meetings that aim towards the cooperation of those countries to stabilize the international oil market", Naimi said.
"During the meeting, there were discussions about the cooperation of the producing countries within OPEC and outside (OPEC)... and the importance of the continuation of such consultations," SPA added.
However, the comments by Saudi Arabia, the world's largest oil exporter, show no indication of a shift in the country's policy of refusing to cut supplies to prop up crude prices, some OPEC delegates said.
Iran wants euro payment for new and outstanding oil sales
Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month's sanctions relief.
A source at state-owned National Iranian Oil Co (NIOC) told Reuters that Iran will charge in euros for its recently signed oil contracts with firms including French oil and gas major Total, Spanish refiner Cepsa and Litasco, the trading arm of Russia's Lukoil.
"In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery," the NIOC source said.
Lukoil and Total declined to comment, while Cepsa did not respond to a request for comment.
Iran has also told its trading partners who owe it billions of dollars that it wants to be paid in euros rather than U.S. dollars, said the person, who has direct knowledge of the matter.
Iran was allowed to recover some of the funds frozen under U.S.-led sanctions in currencies other than dollars, such as the Omani rial and UAE dhiram.
Switching oil sales to euros makes sense as Europe is now one of Iran's biggest trading partners.
"Many European companies are rushing to Iran for business opportunities, so it makes sense to have revenue in euros," said Robin Mills, chief executive of Dubai-based Qamar Energy.
Iran has pushed for years to have the euro replace the dollar as the currency for international oil trade. In 2007, Tehran failed to persuade OPEC members to switch away from the dollar, which its then President Mahmoud Ahmadinejad called a "worthless piece of paper". Related Coverage
› Oil falls with glut in focus after hopes for producer deal fade › Prolonged oil slump sparks second wave of cuts to 2016 budgets
The NIOC source said Iran's central bank instituted a policy while the country was under sanctions over its disputed nuclear program to carry out foreign trade in euros.
"Iran shifted to the euro and canceled trade in dollars because of political reasons," the source said.
BOOST FOR EURO TRADE
Iran has the world's fourth-largest proved reserves of crude oil, and expects to quickly increase production, which could lead to tens of billions of euros worth of new oil trade.
Iran's insistence on being paid in euros rather than dollars is also a sign of an uneasy truce between Tehran and Washington even after last month's lifting of most sanctions.
U.S. officials estimate about $100 billion (69 billion pound) of Iranian assets were frozen abroad, around half of which Tehran could access as a result of sanctions relief.
It is not clear how much of those funds are oil dues that Iran would want back in euros.
India owes Tehran about $6 billion for oil delivered during the sanctions years. Related Coverage
› Saudi, Venezuela talk of OPEC, non-OPEC cooperation to stabilize oil market: SPA › Top independent refiners see cheap gasoline demand growing
Last month, NIOC's director general for international affairs told Reuters that Iran "would prefer to receive (oil money owed) in some foreign currency, which for the time being is going to be euro."
Indian government sources confirmed Iran is looking to be paid in euros.
Tehran has asked to be paid using the exchange rates at the time the oil was delivered, along with interest for those payment delays, Indian and Iranian sources said.
Indian officials are working on a mechanism that could involve local banks United Commercial Bank (UCO) and IDBI Bank for handling payments to Iran, one Indian government source said.
UCO CEO R.K. Takkar said the bank is involved in payments to Iran, but did not say if there were any plans to change the payment mechanism. IDBI CEO Kishor Kharat could not be reached for comment.
India could also try to resume payments through Turkey's Halkbank, a channel it stopped using in 2012, or by direct transfer to Iranian banks through the global SWIFT transaction network.
With Iran now again linking to international lenders through SWIFT, the NIOC source said it was easy for Tehran to be paid in any currency it wants, adding: "And we want euros."
5 key reasons oil is sinking after oil-output freeze Oil-producing heavyweights on Tuesday took measures to address what has been a protracted plunge in crude prices. Saudi Arabia, Venezuela, Russia and Qatar all got together in Doha and decided to freeze production at January levelst, but the devil is in the details and the agreement is far from perfect, according to analysts.
Here are some crucial points traders and investors are weighing as they factor the long-term effect of the output freeze: 1. It is a production freeze, not a cut 2. Production is frozen at January levels, which was already very high 3. The big caveat—winning over Iran and Iraq 4. More room for the U.S. 5. Higher prices could undercut demand http://www.marketwatch.com/story/5-key-points-to-know-about-the-oil-output-freeze-2016-02-16
Oil rose up to 2 percent on Friday, with U.S. crude headed for a fourth week of gains, after the Western world's energy watchdog said the market may have hit bottom, although Goldman Sachs said the 50 percent rally in under two months was "premature."
The Paris-based International Energy Agency, which coordinates energy policies of industrialized nations, said U.S. and non-OPEC crude output was beginning to fall quickly, while increases in Iranian supply had been less than dramatic.
The IEA said it believed non-OPEC output will fall by 750,000 barrels per day this year, some 25 percent more than the 600,000 bpd it previously forecast.
Goldman Sachs remained bearish, saying in a note to clients that prices could fall sharply in coming weeks with record U.S. inventory builds offsetting production declines in the country.
The bank said oil prices need to be low enough to ensure supply is reduced over time, projecting $39 a barrel on the average for global benchmark Brent crude in 2016, down from its previous forecast of $45.
"So now it appears the two sides of the debate are set," said David Thompson at Washington-based commodities broker Powerhouse. "The bearish view of Goldman Sachs versus the IEA on the bullish side."
Brent LCOc1 rose 36 cents, or nearly 1 percent, to $40.41 a barrel by 12:10 p.m. EST. On the week, it rose 4 percent, heading for a third weekly gain in a row.
U.S. crude CLc1 was up 80 cents, or 2 percent, at $38.64 a barrel, after hitting a 2016 high at $39.02. It was up nearly 8 percent on the week, a fourth straight week of gains.
The market will be looking out for U.S. rig activity data due from oil services company Baker Hughes around 1:00 p.m. after oil drillers last week cut rigs for an 11th week.
The IEA's forecast aside, there could be more supply disruptions, with a source telling Reuters that maintenance works will close Britain's Buzzard oilfield in July for roughly a month. The 180,000 bpd field is the largest contributor to the Forties crude oil stream, one of four crudes which underpin Brent.
However, oil has resumed flowing from Iraq's Kurdistan region to the Turkish port of Ceyhan, sources said, after a pipeline's closure in mid-February removed some 600,000 bpd from the market.
Oil prices edged lower on Monday after producers failed to agree on a plan to curb global supply at a meeting in Qatar, while world stock markets rose and the Dow Jones industrial average closed above 18,000 for the first time since July.
Shares of consumer companies including Hasbro (HAS.O) and Walt Disney (DIS.N) helped buoy U.S. stocks, while investors braced for a flurry of quarterly earnings reports through the week.
In Qatar, some 18 oil-exporting nations, including OPEC members, failed to agree to stabilise output at January levels until October 2016. A pact fell apart after Saudi Arabia demanded that Iran join in.
Crude oil ended well off the day's lows, however, with a strike in Kuwait slashing the country's oil output by more than half.
Brent crude LCOc1 settled down 19 cents, or 0.4 percent, at $42.91 a barrel, after falling $3 earlier in the session, while U.S. WTI crude CLc1 closed down 58 cents, or 1.4 percent, at $39.78 a barrel, after hitting $37.61 earlier.
Some analysts said they don't expect oil to fall significantly more as a result of the Qatar news.
"While a few forecasters may be dusting off some old $20 WTI expectations as a result of the Doha outcome, we expect solid support in nearby WTI at the $35 mark," Jim Ritterbusch at Chicago oil consultancy Ritterbusch & Associates said.
A recent rebound in oil and signs that the U.S. economy is slowly improving have helped stocks rally from a steep selloff earlier this year that had pushed the S&P 500 down as much as 10.5 percent.
On Wall Street, Walt Disney rose 2.9 percent a share after its "Jungle Book" film dominated the weekend box office, while Hasbro jumped 5.8 percent after reporting better-than-expected quarterly profit and revenue.
An index of energy shares .SPNY rose 1.6 percent as crude prices pared losses.
How Far Can Oil Rally? Investors Wager on Surge Above $100 Oil investors are buying contracts that will only pay out if crude rises well above $100 a barrel over the next four years -- a clear sign some believe today’s bust is sowing the seeds of the next boom.
The options deals, which brokers said bear the hallmarks of trades made by hedge funds, appear to be based on the belief that current low prices will generate a supply crunch as oil companies cut billions of dollars in spending on developing fields. The International Energy Agency forecasts that non-OPEC supply will suffer its biggest decline in more than two decades this year.
"The market faces a supply crunch in the next 24 months," said Francisco Blanch, head of commodities research at Bank of America Merrill Lynch in New York. "Some hedge funds are betting that oil prices will need to rise sharply to bring demand down again -- that’s why they are buying deep out-of-the-money call options."
Over the last month, investors have bought call options -- giving the right to buy at a predetermined price and time -- for late 2018, 2019 and 2020 at strike prices of $80, $100 and $110 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing Corp.
Even before the most recent flurry, some investors had already built super-bullish positions. The largest number of outstanding contracts -- or open interest -- across both bullish and bearish options contracts for December 2018 is for calls at $125 a barrel. For December 2020, it’s for $150 calls.
"I do think we are setting up for a spike higher, but it’s probably not till 2018, or maybe late 2017, because we are losing immense amounts of supply," said Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd.
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