The recent oil talks and price volatility

Leave a comment
Australian Economy, Chinese Economy, European Economy, UK Economy, US Economy

Doha talks

Oil prices made a smart recovery during first two weeks of April 2016 ahead of the Doha meeting between the OPEC and Non OPEC countries to reduce the production and curtail supply at the January levels by the major oil producing countries. Accordingly, the iPath S&P GSCI Crude Oil Total Return (NYSEARCA: OIL) generated 6.84% returns during April 1st to April 15th. Even the Crude Oil futures surged from $36.79 on April 1st to $42.17 on April 12th (Source: Bloomberg). On the other hand, the talks failed as the countries could not arrive at a mutual understanding due to Saudi Arabia‘s insistence on Iran’s presence in the talks and Iran taking a stand on not curtailing its production till it doesn’t attain its post sanction market share. OPEC countries and Russia though have plans of entering into a deal but without Iran‘s presence success of such a deal is doubtful. Markets will now track the OPEC meeting in June to reach an agreement on freezing oil output.

 

oil1

World Oil Consumption (Source: Short-Term Energy Outlook, April 2016 – U.S. Energy Information Administration)

 

Crude oil production

After the OPEC meeting, data over the disrupted supply from Kuwait, Nigeria, and Venezuela, and from the other OPEC countries for a brief period of time, again triggered the oil prices rally. The reduction in production had an impact on the global supplies by nearly 2.5 million bpd. This triggered the market balance for a short duration and led to jump in the oil prices. Among the Non OPEC countries the decline in oil supply from the US has also boosted the oil price rise .The US output has declined by 3.2% yoy to 9.02 million bpd in Q1 after the highest point of 9.6 million bpd achieved in June 2015. Shale output has also reduced for almost a year by 12.7% and is expected to reach the levels of 4.8 million bpd from 5.5 million bpd in March 2015. However, the current increase in the price might act as a motivating factor for the countries to continuously keep producing thereby disrupting the market equilibrium once again due to excess supply.

 

Positive indicators

Hopes of China recovering from economic slowdown also contributed to the oil price rising. Foreign currency reserves have increased in March, and the Chinese yuan appreciated against the dollar from February to March 31st, 2016. The CSI 300 surged over 9% driven by the better than estimates earnings by the firms coupled with positive data like improving prices of new homes by 3.1% from March last year. Increase in the industrial output from average of 5.4% to 6.8% in March indicated the rise in oil consumption which even supported oil prices rally. Chinese government even undertook few measures and regulations to revive its economy.

 oil2

Crude oil price forecast for 2016 (Source: Commodity prices outlook for April 2016 by World Bank)

 

Oil forecast

Despite the dollar falling, the World Bank has raised its 2016 forecast for crude oil prices to an average of more than $41 per barrel from $37 per barrel in its latest Commodity Markets Outlook, as an oversupply in markets is expected to be balanced, while market sentiments would continue to improve. Moreover, as per the World Bank report, most of the commodities are estimated to recover next year driven by the better demand. On the other hand, World Bank also commented that a better governance and macroeconomic policies need to be initiated given the subdued oil price environment.

oil3

Oil Price, WTI (Source: Commodity prices outlook for April 2016 by World Bank)

 

Given the 50-70% plunge in the oil and metals prices between 2011 and early 2016, many resource development projects were either put on hold or were delayed, in a way, affecting the oil and commodity sector at large. Given the recent developments, World Bank now estimates that a modest price recovery is expected in 2017 for most commodities with the increase in demand while crude oil is estimated to surge to $50/bbl with the market attaining some stability. There are few factors that may impact the price forecast going either side and entail non-OPEC supply scenario, Iranian exports, supply provision by OPEC producers, global demand, and so forth.

oil4

Sector Movements

 

As of now, the Oil & Gas sector is moving up at the back of positivity witnessed in the oil price trend. With these developments, we note the surge in oil stocks, for instance, Woodside Petroelum Ltd (ASX: WPL) rose about 1% on April 28, 2016 and 3.04% in the last one month, while Santos Ltd (ASX: STO) jumped 3.52% on April 28, 2016. Oil Search (ASX: OSH) is another company witnessing a 15.36% rise in the last three months (as at April 27, 2016) at the time of the oil price fluctuations trending in. With upcoming scheduled discussions, more clarity is expected to be attained on the fate of the oil sector in the near and long.


Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in: BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2015 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s