In June, oil prices decreased. In particular, Brent North Sea quality opened at $50.25/b and closed at $47.90/b, while West Texas Intermediate opened at $48.18/b and closed at $46.20/b. At the time of writing, Brent crude was trading at $48.57/b, while WTI was quoting at $45.90/b.
On June 21st, both the European and Asian benchmark and the American reference reached their 8-month low, respectively pricing $44.79/b and $42.25/b due to the following reasons:
1. During the first part of the month, global oil inventories (OSCE area) exceeded again 3 billion barrels. Especially, after two months during which U.S. oil stockpiles decreased by 25.600.000 barrels, they unexpectedly rose;
2. Both Nigeria, and Libya – which are exempted by the November 2016 agreement – increased their extractions, adding into the market 375,000 b/d;
3. On June 16th, the U.S. oil production has reached 9,350,000 b/d for the first time since August 2015 thanks to the fracking activity.
The light recovery verified during the last week of June was because in the U.S. crude stocks decreased by 2,500,000 barrels and the gasoline inventories by 578,000 barrels according to the Energy Information Administration. Moreover, U.S. oil extractions diminished by 100.000 b/d to 9,250,000 b/d.
To conclude, if barrel prices fell to their lowest level since November 2016 in spite of the supply cuts by OPEC and Russia and the geopolitical tensions in the Middle East between Qatar and the other Petromonarchies, the main reason is that the real global economic activity is slowdowning. As chance would have it, U.S. consumption trend, which determine 2/3 of its GDP – is weak.
It was a volatile month of trading in May for the oil traders as the prices weakened during the early part of the month, then strengthened in the lead up to the OPEC meeting and then weakened again towards the end of the month as the OPEC once again sought to extinguish any sort of hopes that the market had, over the increasing oil prices. All of this action happened within one month and to some investors and traders, this should come as a relief after the stalemate that we had seen in the first couple of months of this year when the oil prices ranged and consolidated without moving much in any specific direction. Last month was all about the OPEC meeting that came about in the third week of the month. The oil prices had a deep fall during the first week of the month as the production and inventory data continued to show a buildup and this was not in the plans of the OPEC and the other producers who were hoping to see their production cut have an effect on the supply which would in turn help to keep pushing the oil prices higher and higher. None of this happened during the first week of the month of May and the oil buyers were scraping the bottom at the $44 region. But better news was to follow as reports began to flow in saying that the OPEC members are likely to agree on a much longer and a much deeper production cut in their meeting towards the middle of the month. More and more such reports began to emerge and Saudi Arabia and Russia also added fuel to the fire by commenting things similar to that effect and also not denying any such report. This increased the market expectations and the bulls showed their thumbs up for these reports by indulging in a lot of buying. As is usual for the markets, the traders clearly overran the reports and the actual meeting and by the time the meeting began in the third week of May, the oil prices had jumped from the depths of $44 to push through $50 and then make its way as far high as the $52 region. It was a clear case of over enthusiasm from the markets and in such cases, it ends up in a lot of tears and that’s what we say. The meeting did go through as planned but the announcements following the meeting were anywhere near as planned. The OPEC members announced an extension of the production cut deal to 9 months which would take the deal through to the end of the year but they did not announce any extra cuts of any sort. This largely disappointed the markets and the oil contracts began to sell off. This pushed the oil prices through the important psychological mark of $50 and the prices ended below that figure for the month of May. We also began to have reports saying that the Russians were comfortable with low oil prices and this basically left the oil prices at the mercy of the incoming production and inventory data. Technically, the break below the $50 mark is an important event which shows that the bears are dominating the scene as far as oil prices are concerned. It is likely to take a lot of effort from the bulls to break back through this region and that is something that is unlikely to happen in the short term as we saw multiple attempts to break through that region, end up in failure during the end of the month of May. We can expect the supports to come in at around the $47.5 region and then the $44 region and if the oil prices do go below even this, then there is not much to save it. Looking ahead to the month of June, we expect the production and the inventory data to dominate how the prices move during the course of the month and with these not showing any signs of thawing; the outlook for oil prices continues to be bearish. The production from Libya continues to be very high and the inventory data from the US also remains high and a combination of these is likely to keep the oil prices under pressure despite the production cut deal continuing through the month of June. The latest developments in the Middle East between Qatar and Saudi Arabia and company is likely to help to keep the oil prices well bid but it remains to be seen whether just this development would be enough to keep it afloat for the rest of the month.
Crude oil prices started April in the midst of a strong uptrend that continued into mid-month. The move ended after with a dramatic technical reversal at the end of six day winning streak. The rally was primarily driven by aggressive hedge and commodity fund buying as money managers continued to increase bullish bets on a crude oil short-fall. The catalyst behind the buying was growing compliance with the OPEC-led plan to cut production, trim the global supply and stabilize prices. Traders primarily ignored signs of increasing U.S. production as rumors began to surface that OPEC and other non-OPEC producers were strongly considering an extension of the program to limit output beyond the June deadline. Crude oil began easing from its high at $54.14 on April 12 as rising U.S. shale oil production offset concerns over geopolitical tensions in the Middle East and output cuts being made to support prices. U.S. crude inventories also touched record highs at both the U.S. storage hub at Cushing, Oklahoma and in the U.S. Gulf Coast. In addition, the U.S. rig count continued to increase throughout April, setting a bearish tone for increased production into the future. Heaving selling on April 19 signaled massive hedge and commodity fund liquidation with the market dropping nearly 4% in one session. This also set in motion a sell-off that eventually drove prices to $49.20 before settling the month at $49.33, down $1.74 for the month or -3.41%.
March has turned out to be a volatile month for the oil prices as they crashed during the early part of the month but they managed to turn it around and were able to recover a part of the move down during the last week of the month. The oil prices had been spending a couple of months in the range between $53 and $55 and it was getting to a stage where the traders were beginning to lose interest in trading oil as it was stuck in the highs of the range and refused to move in either direction for several weeks. It was during the month of March that the market began to slowly realise the scale of data that was coming in and realised that the incoming inventory and production data did not show as much a drop as was expected when the agreement between the oil producers was sealed. They had expected the production and the inventory to slow down, gradually pushing the prices higher and higher but with the North American producers increasing the production, the oil supply did not get the drop that it was supposed to. This finally dawned on the oil traders who sold off oil in the early part of March. The sell off was only for a couple of days but that was enough to push down the oil prices by around 12% and through the important figure of $50. This was a huge blow for the bulls and for 2 weeks, they could not break back through $50 cleanly and it was only towards the end of the month, that the oil inventory began to show signs of drying up, the oil producers seemed to be confident of continuing their deal beyond the middle of the year and the Libyan oil production also tailed off and all these events were enough to push the oil prices above $50 where it stayed to close the month. Looking ahead to April, we believe that the oil prices have come out of the rut below $50 and are here to stay above it for good. This is what the bulls would also hope for and it is important to watch out for the production and inventory data to see for signs of continuing fall or for signs of them picking up and these are the data that are likely to guide the oil prices in the coming month. We believe that the prices would range between $50 and $55 in the coming month if the incoming data is as expected. Else, the oil prices are likely to fall below $50 again and if that happens, the bulls would be finding it very difficult to break back above the important figure again.
U.S. West Texas Intermediate crude oil futures finished February slightly higher. The range was extremely tight as rising U.S. production continued to offset increased compliance with OPEC’s planned output cuts. April WTI crude oil finished at $54.01, up $0.59 or +1.10%. The range for the month was an extremely tight $3.17. U.S. production continued to rise last month with inventory increasing every week to end the month at a record 520.2 million barrels. The number of rigs drilling for oil also continued to increase, ending February at 602 rigs, up about 36 rigs. According to Reuters, OPEC reduced its oil output for a second month in February. Its data showed that the cartel boosted strong compliance to around 94 percent. Saudi Arabia reduced production by more than it pledged. Russia has cut production by a third of its pledge. Finally, government data showed hedge funds hold a record net long position in crude oil futures and options.