The oil price rally that wasn’t

We were led to believe that a $100 per barrel oil price was not a case of "if" but "when." Over April, and early on in May both Brent and WTI futures continued their upticks, primarily driven by hedge funds piling into the front end of the futures curve, and OPEC hinting at extending its production cut agreement.

Even six-month dated Brent contract's backwardation streak started to narrow, though it ultimately stayed in backwardation mode, as the Oilholic noted in a recent broadcast. And then it happened – information came out that the Saudis and Russians were no longer keen on extending the existing OPEC/non-OPEC production cut agreement, that has seen 1.8 million barrels per day (bpd) taken out of the global supply pool by 14 OPEC and 10 non-OPEC producers. 

Furthermore, if a Reuters exclusive is to be believed, the US demanded that OPEC production be raised by 1 million bpd. The same story also claimed that President Donald Trump's unilateral slapping of sanctions on Iran only came after the Saudis allegedly promised to raise their output. 

Sidestepping all of this, the Oilholic has always maintained that the barrels OPEC and non-OPEC producers took out of the market to – in their words "balance the market" – had to return to the global supply pool at some point. That was the real "when not if" situation for the market.  

As market sentiment on that happening has gained traction, the predictable result is a visible correction in the futures market with OPEC set to meet on 22 June. Meanwhile, the $100 price remains a pipedream, with both benchmarks still oscillating in a very predictable $60-80 range, only occasionally flattering to deceive with bullish overtones only to slide backwards (see graph above, click to enlarge). 

Away from the crude price, here are one's Forbes posts on US oil producers maintaining their efficiencies drive despite relatively higher oil prices and the UK-France Channel Tunnel operator's latest sustainability initiative of using ozone friendly refrigerants for cooling it landmark tunnel. 

Finally, it's a pleasure to have the Oilholic mentioned and recognised by third parties. These include Feedspot who recently featured this blog in their ‘Top 60 oil and gas blogs to follow’ section. It comes after industry data provider Drillinginfo flagged this blog in its roundup of '10 great oil & gas blogs to follow', as did penny stocks expert Peter Leeds, and US-based Delphian Ballistics. A big thank you to all of the aforementioned. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Graph: Friday closes of oil prices year to 8 June 2018 © Gaurav Sharma 2018.

Medium term oil forecast unaltered by OPEC & non-OPEC action

One week on from OPEC and non-OPEC producers' decision, to roll over their ongoing oil production cuts of 1.8 million barrels per day (bpd) to the end of 2018, there's no bullish frenzy in the crude futures market.

In the Oilholic's humble opinion, that was never their intention in the first place anyway. The primary purpose was to keep the OPEC put in place, and protect the oil price floor in 2018 at $50 per barrel, using Brent as a benchmark.

Given that the global proxy benchmark is currently well clear of $60, and lurking near 2-year highs; most analysts would say it's a case of job done for now. 

That said, the current range is the new normal, and there's little on the horizon to suggest otherwise. For instance, following the OPEC meeting, ratings agency Moody's said it would keep its medium-term oil price estimates at $40-$60 per barrel. 

"Recent higher oil prices have been supported by global economic growth forecasts, production restraints and increased geopolitical risk," said Terry Marshall, a Moody's Senior Vice President. "But risks to prices persist, including reduced consumption due to higher prices, as well as increased supply."

It's a view this blogger shares, and few analysts in the City of London would suggest otherwise. Of course, as expected, the number of US rigs has risen too with Brent prices firming up above $60 and WTI fast approaching the mark. There maybe an upside in the wake of OPEC's decision, but the US shale drag is well and truly alive and kicking. That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: Oil extraction site © Lukoil.

Why oil isn't escaping $45-55/bbl range

For much of August, the oil market has shown signs of breaking the $45-55 per barrel range – in which it has been stuck of late – toward the upside. Yet, the moment it hits the upper end of the range, a sell-off ensues.

It can be explained away by merely focussing on the supply side of the argument, i.e. global inventory rebalancing not proceeding at pace, and OPEC’s own compliance faltering. However, that is only part of the explanation. 

Two other variables – China’s demand growth and market perception on what would happen when the current OPEC arrangement ends [in March 2018] – are also influencing trading patterns. 

Admittedly, the Brent forward curve has moved from contango into backwardation, i.e. where prices for immediate delivery are higher than those for later delivery. Conventionally, that is considered a bullish sign for prices since it is indicative of demand outpacing supply in the world of "here and now."

However, the Oilholic is not convinced, as what we are witnessing is a not a conventional market. This blogger remains net short and here are one’s reasons for it via a Forbes post (click here). Have a read, alternative viewpoints are most welcome – just ping an email across. But that's all for the moment folks! Keep reading, keep it crude!

To follow The Oilholic on Twitter click here.

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© Gaurav Sharma 2017. Photo: Rig workers © Cairn Energy.