Oil prices and the to-and-fro Game



The recent oil price updates entailing fluctuations in Brent crude prices witnessed a hit to little lower level on June 07, 2016 post a seven-month surge on June 06, 2016. As reported by Thomson Reuters, Brent crude for August delivery LCOc1 dropped 14 cents at $50.41 a barrel from Monday’s rise of 91 cents. NYMEX crude for July delivery CLc1 fell 11 cents at $49.58 a barrel. US Crude Oil on last Tuesday closed at $ 49.10 down 0.47%.

oil11US Dollar Index and Brent Crude Futures (Source: Thomson Reuters)

We also saw the Crude Oil Futures’ smart rally of about 14% in the month of March as Saudi Arabia supported the proposed crude production freezing given the oversupply of the oil across the world. Qatar, Venezuela and other non-OPEC members proposed an Oil freeze in January levels. Even though Iran was not supporting this move, positive statement from Saudi Arabia also drove the Brent Oil Futures in the month of March. On the other hand, the Saudi Arabia had raised concerns by issuing a statement that they would support the oil freezing proposal only when other regions would follow this. As a result, the crude oil resumed their negative sentiment with the Crude Oil Futures declining by about 4% while Brent Oil Futures fell by about 3% as of April 06, 2016. In fact, the Saudi Arabia only marginally decreased their production to over 10.2 million barrels of oil a day as of January 2015, as compared to the region’s high level of 10.5 million barrels a day during June 2015, adding more worries over the region’s support for oil production freeze. Kuwait also sought to recommence production from its joint offshore field that was shut down in October 2014, which used to add over 300,000 barrels of oil per day. Consequently, International Energy Agency estimated that this production would add to the ongoing oversupply and surpass the world oil demand of over 2 million barrels a day.


Commodities (Brent crude) returns (Source: Financial Times)

Russia has been producing more, and delivered an oil production increase of 0.3% to 10.91 million barrels per day during March, which was the peak level since last 30 years, contributing to the ongoing concerns of the potential region’s support to freeze output. Russia’s oil market is mainly controlled by major oil firms like Gazprom, Rosneft and Lukoil. Non-OPEC members’ oil production rose 1.5 million barrels per day during 2015 driven by rising U.S. shale and offshore oil production demand based on U.S. Energy Information Administration (EIA) reports. Meanwhile, the recent U.S. Energy Information Administration petroleum report for March third week indicated that the Crude oil inventories increase by 2.3 million barrels against the earlier week adding to oversupply concerns. But, the product inventories decreased wherein gasoline fell 2.5 million barrels and distillates decreased by 1.1 million. On the other hand, distillates production increased during the week leading to an average of 4.9 million barrels per day. The natural gas stocks peaked at 2,468 bcf as of March third week and surged over 68.3% from the 1,466 bcf in storage during the corresponding period of last year as well as increased by 51.9% against more than the five-year historical average of 1,625 bcf for the same period.

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The recent momentum of the market with Brent crude prices hovering above $50 seems to be strong given drivers such as weak dollar (nearing four-week low against various currencies), drop in US crude inventories, supply outages in Canada and Nigeria, restart of French refinery (three of Total’s French oil) and so forth. China also seem to witness some steadiness in economy which is a good sign. Nonetheless, the recent lift in prices is seen without any support from OPEC and is expected to be an early indicator of oil companies redeploying rigs for drilling. The recent update from the members of the Organization of Petroleum Exporting Countries (OPEC) includes rejection of the proposal to adopt a new production ceiling that led to price decline last week.


Drilling Data (Source: Bloomberg)


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