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Crude Oil Slumps on Supply Concerns after Four Days of Gains

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  • Crude Oil Slumps on Supply Concerns after Four Days of Gains

Crude oil prices dropped yesterday ending a four-day winning streak amid concerns about the rising inventory in the global market as the Organisation of Petroleum Exporting Countries (OPEC) mulls production cuts.

Apart from the surplus inventory in the oil market, growing fears of an economic slowdown, which saw European and Asian stock markets tumble again, added further pressure on crude oil prices.

Reuters reported that the global Brent crude futures, the international benchmark for oil prices, were at $66.07 a barrel, down 72 cents, or 1.08 per cent, from their last close.

US West Texas Intermediate (WTI) crude futures were at $56.63 per barrel, down 57 cents, or one per cent.

Russian Energy Minister, Alexander Novak said on Monday that his country, which is not an OPEC member, planned to sign a partnership agreement with the group, and that details would be discussed at OPEC’s December 6 meeting in Vienna, Austria.

The plan by OPEC and Russia to cut supply to the international market followed an increased alarm that supply has started to outpace consumption.

US President Donald Trump had posted a tweet meant to put pressure on OPEC not to cut supply to prop up prices.

Trump’s tweet followed reports that Saudi Arabia was considering a production cut at the December OPEC meeting.

The United States’ sanctions against Iran, which took effect on November 4, are expected to reduce supply to the global market.

However, a US decision to grant waivers to some of Iran’s oil customers, who faced the prospect of a drop-off in supply from the sanctions, has also helped soothe concern about availability of crude.

The Head of Paris-based International Energy Agency (IEA), energy advisor to about 26 industrialised countries, Fatih Birol, said on Monday that oil supply cuts by key producers could have negative implications for markets.

He appealed to market players to use “common sense”.

Speaking at a news conference with central European energy ministers in Bratislava, Birol reportedly said markets were currently well supplied but spare capacity in Saudi Arabia was thin and cuts by key players could tighten markets.

“Currently markets are very well supplied but we should not forget that spare capacity in Saudi Arabia is very thin, therefore cutting the production significantly today by key oil producers may have some negative implications for the markets and further tightening the markets,” he said.

Birol yesterday warned of the effects of geopolitical instability on prices.

“We are entering an unprecedented period of uncertainty in oil markets,” Fatih Birol told a conference in Norway.

Oil prices are around a quarter below their recent peaks in early October, weighed down by surging supply, especially from the United States, as well as a slowdown in global trade.

US crude production has soared almost 25 per cent this year, to a record 11.7 million barrels per day (bpd).

Amid the uncertainty, financial traders have become wary of oil markets, seeing further downside risk to prices from the growth in U.S. shale production as well as the deteriorating economic outlook.

Portfolio managers have sold the equivalent of 553 million barrels of crude and fuels in the last seven weeks, the largest reduction over a comparable period since at least 2013.

Funds now hold a net long position of just 547 million barrels, less than half the recent peak of 1.1 billion at the end of September, and down from a record 1.484 billion in January.

Concerned about an emerging production overhang similar to the one that led to a price slump in 2014, OPEC is pushing for a supply cut of 1 million to 1.4 million bpd.

“We expect OPEC to agree to a supply cut at its next official meeting on December 6,” Reuters quoted French bank, BNP Paribas, as saying.

The bank added that it expected Brent to recover to $80 per barrel before the year-end.

“In 2019, we expect WTI to average $69 per barrel and Brent $76 per barrel,” BNP said.

The IEA, however, warned OPEC and other producers of the “negative implications” of supply cuts, with many analysts fearing a spike in crude prices could erode consumption.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

OPEC+ Production Cuts Set to Balance Global Oil Market, Says Russian Deputy PM

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In a statement on Monday, Russian Deputy Prime Minister Alexander Novak expressed confidence that the global oil market will achieve balance in the second half of 2024, thanks to the production cut strategies implemented by the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+.

OPEC+, which includes major oil-producing countries such as Saudi Arabia and Russia, has been actively managing oil output to stabilize the market since late 2022.

In their most recent meeting on June 2, the group agreed to extend their latest production cut of 2.2 million barrels per day (bpd) until the end of September. This cut is scheduled to be gradually phased out starting in October.

“The market will always be balanced thanks to our actions,” Novak stated, emphasizing the importance of the coordinated efforts by OPEC+ in maintaining market equilibrium.

The U.S. Energy Information Administration (EIA) recently projected that global oil demand will surpass supply by approximately 750,000 bpd in the latter half of 2024 due to the continued reduction in OPEC+ output.

This outlook was echoed in a report by OPEC last week, which highlighted an anticipated oil supply deficit in the coming months and into 2025.

Novak’s remarks come at a crucial time for the global oil market, which has experienced significant volatility over the past year.

The OPEC+ alliance has been pivotal in mitigating some of this instability by adjusting production levels in response to fluctuating demand and other market dynamics.

Analysts suggest that the measures taken by OPEC+ will play a vital role in ensuring that the oil market remains stable as the world continues to navigate economic uncertainties and fluctuating energy demands.

The production cuts are expected to support oil prices by limiting supply, thereby helping to balance the market.

The impact of these production cuts is already being felt, with oil prices showing signs of stabilization.

However, the market remains sensitive to geopolitical developments and economic trends, which could influence future supply and demand dynamics.

As OPEC+ prepares to unwind some of its production cuts in the coming months, industry observers will be closely monitoring the market’s response.

The gradual phasing out of the cuts is designed to prevent any sudden shocks to the market, allowing for a smoother transition and sustained balance.

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Crude Oil

Oil Prices Steady Amid U.S. Political Uncertainty and Middle East Tensions

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Oil prices held firm on Monday as the political uncertainty in the United States and ongoing tensions in the Middle East persist.

Brent crude oil, against which Nigerian oil is priced,  fell slightly by 13 cents, or 0.2%, to $84.90 a barrel after a 37-cent drop on Friday.

Similarly, U.S. West Texas Intermediate crude stood at $82.15 a barrel, down 6 cents, or 0.1%.

The dollar’s strength, which followed a failed assassination attempt on U.S. presidential candidate Donald Trump, exerted some pressure on oil prices.

A stronger dollar typically makes oil more expensive for buyers using other currencies, leading to reduced demand.

“I don’t think you can ignore the uncertainty that the weekend’s assassination attempt will cast across a deeply divided country in the lead-up to the election,” said Tony Sycamore, market analyst at IG.

In the Middle East, efforts to end the Gaza conflict between Israel and Hamas stalled over the weekend.

Talks were halted after three days, although a Hamas official indicated that the group had not withdrawn from discussions.

The situation escalated further when an Israeli attack targeting a Hamas military leader killed 90 people on Saturday, maintaining the geopolitical premium on oil.

Despite these geopolitical tensions, oil markets remain supported by supply cuts from OPEC+. Iraq’s oil ministry has pledged to compensate for any overproduction since the beginning of the year, reinforcing the market’s stability.

Last week, Brent fell more than 1.7% after four weeks of gains, while WTI futures slid 1.1%. The decline was largely attributed to a fall in China’s crude imports, which countered robust summer consumption in the United States.

“While fundamentals are still supportive, there are growing demand concerns, largely emanating from China,” noted ING analysts led by Warren Patterson.

China’s crude oil imports fell 2.3% in the first half of this year to 11.05 million barrels a day, with disappointing fuel demand and reduced output by independent refiners due to weak profit margins.

Also, crude throughput at Chinese refineries dropped 3.7% in June from a year earlier to 14.19 million barrels per day, marking the lowest level this year, according to customs data.

China’s economy has slowed in the second quarter, weighed down by a protracted property downturn and job insecurity, keeping alive expectations that Beijing will need to implement more stimulus measures.

In the United States, the active oil rig count, an early indicator of future output, fell by one to 478 last week, marking the lowest level since December 2021, according to energy services firm Baker Hughes.

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Crude Oil

Nigeria Awards $21M Contract to Meter 187 Crude Oil Flow Stations

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The Federal Executive Council (FEC) has approved a $21 million contract to meter 187 crude oil flow stations across Nigeria.

The decision was announced by the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, during a press briefing in Abuja.

Minister Lokpobiri highlighted that this initiative is part of the government’s broader strategy to reorganize the oil and gas sector, ensuring accurate accounting of the country’s crude oil production and exports.

The contract, awarded to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), aims to install metering systems at flow stations within the Niger Delta region.

“This project marks a major development that has never happened in this country. The metering of our 187 flow stations will provide proper accountability of our oil production and exportation,” Lokpobiri stated. The project is expected to be completed within 180 days.

In addition to the metering contract, the FEC also approved the deployment of advanced software to monitor the movement of Nigeria’s crude oil from the point of loading to its final destination.

This technology will allow real-time tracking of crude oil shipments, addressing long-standing issues of oil theft and misreporting.

Lokpobiri explained, “With this advanced cargo tracking technology, we will know from the point of loading in Nigeria up to the final destination. This step is crucial in ensuring Nigerians get maximum value for the crude oil produced.”

The metering and monitoring initiatives come at a time when Nigeria faces significant challenges in its oil production.

Domestic refineries have complained of insufficient crude supplies, and there have been persistent concerns about the transparency of actual crude oil volumes produced in the Niger Delta.

Nigeria’s current production stands at less than 1.3 million barrels per day, below the 1.5 million barrels daily quota approved by the Organisation of Petroleum Exporting Countries (OPEC).

The initiatives are part of the government’s efforts to ramp up crude oil production and increase revenue.

“Oil remains the fastest way to raise the funding needed to address our economic and social problems,” Lokpobiri noted.

The accurate tracking and metering of oil production are expected to bolster investor confidence and contribute to the country’s economic stability.

The minister also hinted at ongoing efforts to rekindle investor confidence in Nigeria’s oil sector, which has seen a decline in major investments over the past 12 years.

“Since the inception of this administration, we have been working hard to bring back the confidence of the investing community,” Lokpobiri declared.

In a related development, the Port Harcourt refinery is expected to come on stream soon, although Lokpobiri did not specify a date for its operational commencement.

The refinery’s activation is anticipated to further boost Nigeria’s oil processing capacity and reduce dependence on imported refined petroleum products.

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