WEEKLY ENERGY RECAP: Wake-up call for the oil industry

A flare stack is pictured next to pump jacks and other oil and gas infrastructure on April 24, 2020 near Odessa, Texas. (AFP)
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Updated 26 April 2020

WEEKLY ENERGY RECAP: Wake-up call for the oil industry

  • Money managers have increased their net-long positions in Brent crude futures and options.

The oil market has come through the most frenetic week in its history — especially so for the US WTI grade that controversially was allowed to fall into negative territory.
On April 20 it closed at an almost unbelievable minus $37 per barrel (for the end of May contracts) before recovering to $16.94 per barrel.
Despite the drama, the US measure finished the week only $1.30 lower than the previous week closing.
It was also a roller-coaster ride for Brent crude, which tumbled to a 21-year-low, first dropping to about $16 before recovering to $21.44.
Money managers increased their net-long positions in Brent crude oil futures and options by 22,665 contracts to 134,119 for the week ending April 21, which represents a six-week high. It will be interesting to see how many of the these options and futures will be translated into physical deliveries.
Although WTI plunged into negative history for the time, net long positions for US crude futures and options also rose by 51,991 contracts to 209,734 over the week. That represents a three-month high. So clearly the expectation is that US oil prices will rise.
The market anomalies of the last week again highlight the disconnect between underlying supply and demand for physical oil on the one hand and the trading of oil-based financial instruments on the other. It is a wake-up call for an industry long blighted by speculation.
As the world emerges from COVID-19 quarantines, oil market fundamentals will likely improve. But we should not forget the chaos of the last week and the urgent need for more transparent international oil benchmarks that it signals.


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

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An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”