WEEKLY ENERGY RECAP: US crude glut caps prices

A picture taken on July 30, 2020 shows the exterior of the Shell Pernis site in Rotterdam. (AFP)
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Updated 01 August 2020

WEEKLY ENERGY RECAP: US crude glut caps prices

Brent crude nudged up to $43.40 per barrel after another steady week. Interestingly, Brent crude rose as futures weakened. That indicates abundant quantities of physical oil or an increased difficulty in placing barrels.

The US WTI oil benchmark took a different direction to Brent, falling to $40.27 per barrel. That may have been triggered by the historically large drop in US second-quarter gross domestic product.

WTI retreated despite US commercial crude stocks falling by 10.61 million barrels, which is the largest draw since the 11.5 million-barrel fall reported for the end of December 2019. 

This brings US inventories to a 14-week low amid rising crude oil exports that climbed to 3.21 million barrels per day (bpd). The drop in spare oil was also linked to rising consumption by refineries, which at 14.6 million bpd is the strongest since March.

Still, according to Energy Information Administration data, US crude inventories remain nearly 18 percent above the five-year average for this time of year.

The fact that US crude storage draws came amid persistently lower crude imports and higher crude exports, should have normally moved the price of US crude higher. 

Instead, it moved lower, despite the weakening of the US dollar. This may be telling the market that oil prices cannot move much higher until the huge storage glut is absorbed.

As oil prices remain steady for the third month in a row, the forward futures curve has weakened, creating a situation where increased production is favored even as refining demand recovered. This is clearly reflected in the WTI futures price curve. Rising coronavirus infections in some US states continue to weigh on market sentiment.

Rising oil demand in Asia could also be capped by a second wave of the virus. Notwithstanding such concerns, gasoline demand has improved to pre-pandemic levels in many countries.

The competition between these two forces of recovery and remission in the global spread of the virus will determine where the oil price settles in the months ahead.

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• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq


Iraq pledges full compliance with OPEC+ oil cuts

Updated 23 min 50 sec ago

Iraq pledges full compliance with OPEC+ oil cuts

  • Prince Abdulaziz bin Salman Al-Saud, the Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, reaffirmed their commitment to the cuts
  • Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month

DUBAI: Iraq has pledged to meet in full its obligations under the OPEC+ oil production cuts that have been credited with rebalancing global crude markets after the mayhem of April’s “Black Monday” when prices crashed around the world.

In a telephone call between Prince Abdulaziz bin Salman Al-Saud, Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, the two men reaffirmed their commitment to the cuts, which have helped to pull the oil price back from historic lows.

Brent crude, the global benchmark, has more than doubled in the past three months.

Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month. Iraq has now committed itself to an ambitious program of compensation to make up for past overproduction.

Iraq will further reduce production by 400,000 barrels per day this month and next, Ismail said, bringing its total cut to 1.25 million barrels daily. That level of cuts could be adjusted when final estimates of compliance are assessed by the six “secondary sources” that monitor OPEC+ output.

“The two ministers stressed that efforts by OPEC+ countries toward meeting production cuts, and the extra cuts under the compensation regime, will enhance oil market stability, help accelerate the rebalancing of global oil markets, and send a constructive signal to the market,” a joint statement added.

Prince Abdulaziz thanked Ismail for his efforts to improve Iraq’s compliance with the agreement.

Iraq had been the biggest laggard in the move toward 100 percent compliance by the 23 members of the OPEC+ alliance.

Officials in Riyadh told Arab News that Iraqi compliance had reached about 90 percent, a high level by the country’s previous standards but still short of the new targets.

Saudi Arabia has been forcefully advocating full compliance with the targets in an effort to remove oil from the global market as demand is still badly affected by the economic fallout from the COVID-19 pandemic.

The oil market will be under the spotlight later this month when the joint ministerial monitoring committee of OPEC+ energy ministers convenes virtually in the most recent of the monthly meetings set up to oversee the state of the global industry.

Oil had another strong week on global markets, breaking through the $45 barrier for the first time since early March on signs that the glut in US oil stocks was easing, as well as reductions in the amount of “floating crude” stored in tankers on the world’s oceans.

The price spiked on news of the Beirut explosion, which some analysts believed could herald a deterioration in regional security and a threat to oil exports.

Brent crude was trading at $44.70 on international markets.