What does the OPEC meetings rescheduling mean for oil?

The big news this week in the oil world is OPEC’s decision to reschedule its meetings.

Oil Trading

It’s not the decision the oil market was hoping for. Instead, there are differing opinions among its members regarding OPEC’s planned extension of oil output cuts.

Talks have been rescheduled to December 3rd 2020.

The call for rescheduling came because of disagreements between the three OPEC heavyweights on how best to proceed. Saudi Arabia, Russia and the UAE all have different visions on how best to proceed:

  • Saudi Arabia – Proposes to extend the current 2 million bpd cuts through January and beyond.
  • Russia – Favours a gradual increase in production volumes starting in January.
  • UAE – Happy to extend production cuts but only if all OPEC members commit and comply with them and wait for all members that have exceeded production quotas to catch up with others.

Originally, after committing to production cuts in April, OPEC+ states were due to begin increasing output in January 2021. The current cuts are worth 7.7m bpd.

It seems not all is rosy within OPEC’s world. The disagreements, and failure to reach an agreement on Monday, underscores tensions within the cartel. 2020 has been an especially trying time for oil, and perhaps OPEC is struggling to deal with the current situation, or at least currently unable to find common ground on how to proceed.

ADNOC, the UAE’s national oil company, for instance, is rumoured to be questioning the validity of its membership. Even Saudi Arabia has its doubts. Flashes from Monday 30th November suggested the world’s largest oil producer is considering giving up its position as OPEC co-chair.

How have prices reacted? Prices have whipsawed on the news, but on the morning of December 1st, WTI and Brent were trading at $45 and above $48 respectively.

Commentators believe that cuts will be agreed on Thursday’s meeting.

Natural gas

Statistically, the outlook is good for natural gas into December.

Total US consumption of natural gas rose by 22.8% compared with the previous report week, according to data from the EIA.

In the residential and commercial sectors, consumption climbed by 81.9% as temperatures cool from a warmer than expected November.

In fact, prices have rallied 4% on the onset of colder weather feeding into higher consumption across the US.

A storm is brewing in the Atlantic with a 40% chance of turning into a cyclone.

Could oil prices continue their upward trend?

More vaccine hope appears to be having a positive influence on oil movements.

Oil trading

On Monday 23rd November, WTI prices teased $43 per barrel, apparently due to further progress on vaccination is injecting optimism into oil markets.

There is fresh, positive vaccine news from the UK. AstraZeneca reports its Covid-19 vaccine is 70% effective, helping instil confidence that an uptick in oil demand will come on mass vaccination.

While the 70% efficacy rate is lower than say Pfizer BioN Tech’s 95% successful product, AstraZeneca’s solution is thought to be much more scalable. It could be rolled out much quicker, and take effect faster, which in turn could play into higher oil demand next year.

Away from vaccines, it looks like armed strikes on oil production facilities in both Saudi Arabia and Libya have helped put a bid under oil.

Yemeni Houthi rebels are claiming responsibility for a missile attack on a Saudi Aramco facility in Jeddah. While Aramco has stated it plans to continue operations at the facility with no major disruption, this was still enough to give WTI and Crude a positive bump.

Traders also got word of an attack by militants on Libya’s National Oil Corporation headquarters in Tripoli on Monday. The attack was quickly repulsed, but oil did show signs of strength opening slightly higher that day, following the news.

So, is the outlook optimistic? It’s possible. WTI is already trading above $43 as of Tuesday 24th November, so it appears the markets are looking positive.

On Monday 30th November, OPEC and allies will sit down for a fresh round of talks. As we’ve previously reported, the organisation is considering extending its production cuts to help stabilise oil prices.

Currently, OPEC plans to taper production by 2m barrels per day in January. Now, it is discussing no taper until the spring, with an extended production cut timeframe of 3-6 months.

Natural Gas

Natural gas appears to be on a small rebound.

After a warmer November, December is forecast to be colder. Total U.S. consumption of natural gas rose by 22.8% compared with the previous report week, according to data from the EIA.

That suggests higher demand via heating buildings, which should have a solid impact on prices.

A storm is brewing in the Atlantic, with a 10% chance it could turn into a tropical cyclone, but it is believed that it will not affect any US East Coast LNG infrastructure.

Is a major oil price rally coming?

More vaccine news and lighter US lockdowns could help oil stage a major rally in the coming months.

Oil trading

WTI and Brent is already holding steady at above $40 per barrel. Oil futures have risen 8% on their January levels so far.

Further price increases could be coming, primarily driven by major progress on finding a Covid-19 vaccine.

Monday 16th November saw American firm Moderna announce its vaccine is 95% successful in preliminary trials. And, unlike Pfizer’s, Moderna says its vaccine can be stored in regular refrigeration temperatures too.

A number of other pharmaceutical companies, including GlaxoSmithKline, Sanofi, CureVac, and Johnson & Johnson, are making headway on their own vaccines.

With mass vaccination, the pandemic, it is hoped, can be halted. Broad-market vaccination is forecast for mid-2021.

All the above could be good news for oil demand as long as progress remains constant.

OPEC predictions will be potentially validated by this news. According to the group’s predictions dating from July, demand could spike 25% by 2021.

That would mean oil demand would hit 29.8m barrels per day – higher than 2019’s volumes.

Speaking of OPEC, it is considering extending its production cuts to help stabilise oil prices. Currently, OPEC plans to taper production by 2m barrels per day in January. Now, it is considering no taper until the spring, with an extended timeframe of 3-6 months.

However, with the last round of OPEC cut compliance standing at 96%, commentators believe lower compliance for its proposed three-month production cut extension could happen.

The US is also looking at lighter lockdown measures as it battles its second Covid-19 wave.

Latest US oil inventory data says stocks stand at 488m barrels as of November 12th. New data will be published on Wednesday 18th November.

Natural gas

US natural gas storage rose by 8m cubic feet last week as reports of a bearish market roll in.

Warmer November temperatures in the coming two weeks are expected to keep reserves high and demand middling.

US citizens are using less gas-based heating as temperatures continue to stay warm this month, which in turn is keeping prices low.

The EIA forecasts that U.S. dry natural gas production will average 91.0 Bcf per day in 2020, down from an average of 93.1 Bcf per day in 2019.

Oil rallies on Biden victory & vaccine news

Two big factors have caused an oil price rally this week.

First: Joe Biden’s victory in the 2020 US elections.

Monday saw an initial 2% rise in WTI and Brent Crude prices after Biden was elected.

It’s thought that this jump was caused by the certainty and stability the announcement of an election winner has created.

It’s worth being cautious following the Biden-led rise.

One of Biden’s key presidential goals is to manoeuvre the US towards a zero-emissions future by 2050. It’s unlikely oil will play a big role in this.

However, WTI and Brent took an even bigger leap following Pfizer’s vaccine announcement.

Pfizer claims its Covid-19 vaccine is 90% effective after preliminary trials. We’re not out of the woods yet, but the news has been a massive positive.

Some light is peaking through the Covid clouds.

But for oil this was big news.

WTI shot up 11%, finally reaching over $40 per barrel, come Monday’s late-afternoon announcement. Brent rose 9% too.

Why? More oil demand is coming, according to forecasters. The success of the vaccine trials means lockdown could be easing sooner than expected.

More people will be moving about, manufacturing will be back, and oil production can begin again.

Another factor at play is OPEC’s decision to take production cuts to prevent a glut.

Essentially, it’s a good week for oil.

US crude oil stocks dropped 7.9 m barrels at the week commencing November 4th. That’s after stocks rose the previous week by over 4m barrels.

Natural gas

On the natural gas front, the picture is a little different from oil’s optimism.

Last week’s gas storage report shows consumption of up to 36bn cubic feet throughout the US, in-line with expected demand.

While this kept prices stable, November is being forecast as one of the hottest on record.

That may offset high LNG stocks, as there’ll be less demand due to low furnace and air conditioning usage throughout the United States.

Refineries earnings signal demand outlook

Oil outlooks continue to fluctuate but a few upcoming announcements may give some clarity.

Prices are holding around $38 per barrel for WTI while Brent crude is roughly $40 p/b.

Refineries are looking to announce their earnings this week, which may give indicators towards Q4 oil demand, specifically on gasoline, diesel and jet fuels.

Valero Energy reported an uptick in demand during Q3, up from Q2, but still way below 2019 volumes.

Q4 forecasts suggest 2.5mpd demand, which is 500,000 lower than Q4 2019’s numbers.

Inventories are thusly high while demand is low.

Majors ExxonMobil and Chevron will be reporting their quarterly earnings this week on October 20th. It will be interesting to see how the supermajors have coped. Exxon alone announced a first-quarter loss of $610m in May 2020. Its performance will be indicative of the industry as a whole.

40 North American oil & gas producers have declared bankruptcy this year. This may point towards a) further closures industry-wide or b) closer collaboration and mergers.

For instance, Conoco Phillips announced last week it was acquiring Concho Resources. Will this be an ongoing trend?

In Natural Gas, markets anticipate bullish natural gas prices in the short and mid. There are several factors at play here including:

  • an unexpected jump in US LNG exports in the coming weekend
  • Potential production drops
  • A major temperature shift towards colder temperatures.

Resilience in natural gas prices is likely to emerge as we head into winter. Colder temperatures point towards stimulated demand for gas for heating and so on. Therefore, the coming months may prove beneficial for commodities traders – if a little cold.

Cryptos rally on PayPal news, Sterling jumps on Brexit hopes

Bitcoin rose to its highest level in over a year, hitting levels not seen since July 2019 after PayPal said it will enable cryptocurrencies on its platform.

Initially, it will allow users to buy, hold, and sell Bitcoin, Ethereum, Bitcoin Cash, and Litecoin in the PayPal wallet. It will also enable users to spend cryptocurrencies for purchases at its 26 million merchants worldwide.

It is hard to know for sure right now what it means, but because of PayPal’s sheer scale and reach I would think the development may be a potential game-changer in the mass use of cryptos, though of course there are many other barriers to its widespread consumer and business adoption.

Mainstreaming in this way should boost the usage case and this would tend to underpin renewed bullishness around the crypto space, though we are at pains to stress that nothing is certain when it comes to cryptocurrencies.

The news rekindled bullish spirits in the crypto space today.

Movements on Cryptocurrency.

Meanwhile, GBPUSD rallied through 1.3140 to reach its highest since September after some positive news around Brexit.

Cable has risen more than 2 big figures from yesterday’s lows so far, underlining the pair’s sensitivity to headlines right now.

There had been strength building all day and then news crossed the wires in the last few minutes that Brexit talks are to restart with the aim of a deal by November 13th.

Clearly in mind is the informal meeting of heads of state in Berlin scheduled for Nov 16th, by which point Macron, Merkel et al will want to have a text to sign off. There has definitely been a narrowing in the gap since the UK shut the door last Friday. This is a positive and indicates that a deal is still more likely than not, though we would be cautious about assuming anything at this stage.

Elsewhere, it’s been a rather downbeat day for equities in Europe.

The FTSE 100 is close to lows of the day and near the September lows around 5800 heading into the close, down -1.3% and not helped by sterling strength. Euro Stoxx 50 trips the middle of the range near 3,200, down -0.66%.

US equities have opened on a firmer footing with the S&P 500 +0.5% and the Nasdaq +0.7% and recovering 11,600. Snap shares +30% after a blowout quarter saw +18% y-o-y rise in users and +4% from the July quarter. More time at home has clearly left consumers spending more time on social media channels like Snap. Gold is firmer above $1,920 and facing important resistance at the 50-day SMA at $1,925.

Movement of the pound against the USD.

US EIA Oil Stocks preview: Oil rattled as Trump cancels stimulus talks

US oil stockpiles rose by more than expected during the week ending October 2nd.

Data from the American Petroleum Institute showed that oil inventories had grown by 951,000 barrels – more than double the 400,000 barrel build analysts had predicted.

The larger-than-expected build follows a smaller-than-expected draw the week before, casting doubts over the robustness of demand in the US.

While gasoline stocks fell by -867,000 barrels during the same period, this was a little short of forecasts and only just over half the size of the build reported the week prior. Distillate inventories fell by just over a million barrels after the previous week’s -3.4 million barrel drop.

Trump tweets: No stimulus discussions until after the election

Also weighing on crude oil sentiment today is the abrupt cancellation of negotiations over a new stimulus package.

President Trump, fresh out of hospital following his Covid-19 diagnosis, tweeted that the Democrats were ‘not negotiating in good faith’ and that talks would not resume until after the election.

Although markets still expect stimulus regardless of who wins the election, the cancellation of talks adds more waiting time to the already delayed second dose of fiscal support.

US EIA Crude Oil Inventories report on tap

Oil traders will be looking for an upside surprise today when the official US Energy Information Administration data is published.

Last week’s report showed a drop in oil stockpiles of nearly -2 million barrels. Analysts this week are expecting to see an increase of nearly 300,000 barrels.

The report is due at 14.30 UTC.

EIA oil inventories preview: Crude struggles after mixed API data

Crude oil and Brent oil are struggling below opening levels today after a bearish inventory report from the American Petroleum Institute.

Both benchmarks headed back towards the two-week lows hit yesterday before returning to trade just under opening levels.

Crude is on track to record its first monthly loss in five months, while Brent looks set to end lower for the first time in six months.

API: Oil draw falls short, surprise gasoline build

The API reported a smaller-than-expected draw in crude oil inventories and a surprise build in gasoline inventories.

Crude oil inventories fell by 831,000 barrels in the week ending September 25th, against analyst forecasts of a 2.256 million barrel drop.

Gasoline inventories also disappointed forecasts, rising by 1.623 million barrels during the same period, instead of falling by 1.3 million barrels as expected.

In more supportive news, US oil production fell to 10.7 million barrels per day.

Rising coronavirus cases raise questions over global recovery

The rising number of coronavirus cases as winter approaches in the Northern Hemisphere has heightened fears of new restrictions that could curb economic activity and therefore demand for oil.

While certain parts of the global economy are bouncing back, others continue to be hammered by the pandemic. Airlines are a key market for oil and various restrictions combined with a general fear of air travel given the current circumstances has seen a huge drop in bookings.

On Tuesday the global Covid-19 death toll passed the 1 million mark, up from 500,000 three months ago, with the number of infected exceeding 33 million.

Traders are also worried that the US Presidential Election may not produce a clear winner on November 3rd, leading to more disruption for the world’s largest economy as both Trump and Biden contest the results.

US EIA oil inventories preview: Crude edges higher on mixed API report

Crude and Brent oil have recovered early losses and are trending higher this morning despite the downside pressure from USD as the dollar index hits a two-month peak.

Crude oil has moved off from the day’s lows of $39.30 to test $40.00, while Brent has risen back towards $42.50 after earlier falling towards yesterday’s intraday lows around $41.61,

Mixed API report shows unexpected oil build, large gasoline draw

The latest US oil inventories report from the American Petroleum Institute showed a surprise build in crude stockpiles.

US oil inventories rose by just shy of 700,000 barrels in the week ending September 18th, according to the latest API report. Analysts had predicted that crude stockpiles fell by 2.256 million barrels.

Although moving in the wrong direction the build is relatively small, especially considering the dent to inventories made by the previous week’s 9.517 million barrel draw.

The report revealed that US oil production increased during the period, but at 10.9 million barrels per day is still 2.2 million bpd below the highs of 13.1 million bpd seen in March.

Sentiment had also been supported by a much larger-than-expected draw in gasoline, with stockpiles falling by 7.735 million barrels compared to analyst’s expectations of a 614,000 barrel drop. Distillates fell by over 2 million barrels.

The official US oil inventories report from the Energy Information Administration is due out later today.

EIA crude inventories preview: Oil up after API report smashes estimates

Crude oil and Brent oil are moving higher for a second session today after another massive draw in US oil stockpiles.

WTI has gained $0.70 (+1.8%) and Brent oil is $0.73 (+1.8%) higher. Crude oil has now almost erased the losses incurred since prices tumbled on September 8th.

Crude, Brent up on falling oil stockpiles

The latest oil report from the American Petroleum Institute revealed that US oil inventories fell by 9.517 million barrels in the week ending September 11th. Analysts had expected a draw of 1.271 million barrels.

While crude stockpiles fell last week, gasoline inventories rose. The Labor Day holiday marks the end of the US summer driving season and falling gasoline demand is expected heading into the winter months.

This may already be priced into the market, however, with crude and Brent having languished near their lowest levels since June at the start of the week. Both the Organisation of the Petroleum Exporting Countries and the International Energy Administration revealed more bearish forecasts for the recovery in global oil demand this week.

Hurricane Sally to provide short-term boost for crude oil?

Oil is being leant short-term support thanks to the approach of Hurricane Sally, which is expected to cut between 3 million and 6 million barrels of energy production along the Gulf Coast.

However, the weather system has also shuttered some refineries, meaning that oil demand has also taken a hit.

Will US EIA oil inventories data contradict API numbers again?

While the API numbers are huge it’s worth remembering that latest week’s report was later contradicted by the official Energy Information Administration figures. While the API report showed a draw of nearly 3 million barrels for the week ending September 4th, the EIA data revealed a 2 million barrel build.

It seems unlikely that the EIA numbers would diverge so heavily from the API figures, but it is worth remembering that there are discrepancies between the two data sets.

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