WEEKLY ENERGY RECAP: Improving sentiment before fundamentals change 

Journalists and police officers stand outside the Organisation of the Petroleum Exporting Countries (OPEC) headquarters, in Vienna, Austria, December 5, 2019. (Reuters)
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Updated 05 May 2020

WEEKLY ENERGY RECAP: Improving sentiment before fundamentals change 

  • While sentiment is improving, the market fundamentals have not as the oil surplus needs time to be absorbed
  • The OPEC+ output cuts have just started and have yet to make an impact on market fundamentals

The month of drama in the oil markets appears to be at an end finally, as prices recorded their first weekly gain since the start of April.
While sentiment is improving, the market fundamentals have not as the oil surplus needs time to be absorbed from the market as economic activity recovers. A similar glut of crude oil and petroleum refined products will also need some time to be depleted.
Although the historical OPEC+ output cuts have just started and have yet to make an impact on market fundamentals, they have nonetheless impacted market sentiment.
Hence, oil prices rose as global production cuts deepened and signs of a fledgling demand recovery emerged. However, it will still take time for the world to consume what is already in storage.
The start of May loading, means lower production and fewer barrels to the market from OPEC+, also from other non-OPEC producers, and this will have a huge impact on the gradual re-balancing of the oil market. The market has been waited anxiously for the start of May barrels.
Stronger transportation fuel demand from the US, China and Europe with traffic returning to the streets, is helping to support a boost in fuel use and refining rates. This sudden demand rebound has improved the physical market noticeably.
Infact, data from the US showed the biggest weekly jump in gasoline demand in almost a year last as stockpiles of the fuel shrunk. At the same time, rush hour traffic in some of China’s biggest cities is returning to pre-virus levels.
Therefore, refining margins are likely to improve in the second quarter as countries reopen businesses that were closed through efforts to contain the coronavirus pandemic. 
Still, it may take some time to restore refined product demand that has nosedived as a result of lockdowns globally.
Baker Hughes reported a big weekly drop in the US rig count which was down by 64 rigs from the previous week to 465 — with oil rigs down 60 to 378, and gas rigs down by four to 85. 
Year on year, the US rig count is down 526 rigs from last year’s 991.
Look at the month of April overall, Baker Hughes reported that the US rig count was 566, compared to 772 counted in March 2020.
Meanwhile the worldwide rig count for April 2020 was 1,514, compared to 1,964 counted in March 2020, and down 626 from the 2,140 counted in April 2019.
Speculation remained strong in the futures markets over the week. Money managers increased net-long positions in Brent crude oil futures and options by 9,007 contracts to 143,126 in the week ending April 28. This represents a seven-week high. At the same time, money managers were also long on WTI crude oil futures and options — which increased by 73,564 contracts to 283,298 — a 16-week high.


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.”