Are Oil Markets Overreacting?

Nov 16, 2018, 01:03
Are Oil Markets Overreacting?

More recently, and in response to the sanctions, Saudi Energy Minister Khalid al-Falih announced on Monday, a major cut in oil production in a bid to rebalance global markets and to boost oil prices that have fallen by around 20% over the last month as global supply has increased. In 2019, world oil demand growth is forecast to grow by 1.29 mb/d y-o-y, about 70 tb/d lower than last month's projection, with total world consumption to reach 100.08 mb/d. OPEC and its partners are said to be discussing a deeper-than-anticipated output cut.

Saudi Arabia is considering pushing through curbs on crude at next month's Opec meeting, on signs that supply is starting to outpace demand.

Even as the Saudis have promised to reduce output, United States production reached 11.6 million bpd in the most recent week, a new record.

Even as the USA was planning to grant the Iran waivers, Trump was badgering other members of OPEC to boost production to make up for any loss of Iranian supply.

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Iranian oil industry has been under pressure from the USA efforts to isolate the country by reimposing sanctions.

The latest drop in price comes after US President Donald Trump tweeted on Monday that he hoped there would be no oil output reductions, after Saudi Arabia said on Sunday that Opec was considering cutting supply next year. He's kept at it even as prices have plunged, tweeting on November 12 that he hoped Saudi Arabia and OPEC wouldn't cut output.

Traders said recent weakness in equities has fanned concerns about global growth, which is also contributing to declines in oil.

Meanwhile, in the USA, crude inventories rose by 10.27 million barrels last week, while gasoline and distillate supplies declined, according to a report from the Energy Information Administration on Thursday.

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Brent for January settlement fell 24 cents to $66.36 a barrel on the London-based ICE Futures Europe exchange. Output, however, rose by 127,000 bpd to 32.9 million bpd, Opec said.

Even as the Saudis floated the possibility of a cut in production, the selling has not abated. The persistent has also been linked to the growing concerns and warnings from the IEA and OPEC over a supply glut, heading into 2019.

OPEC's boss says current market volatility is due to anticipation of the cartel's impending summit.

"The market now increasingly looks concerned about the prospect of too much supply", said Norbert Ruecker, head of macro and commodity research at Swiss bank Julius Baer.

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Non-Opec oil supply will surge by 120,000 bpd next year and the US, Canada, Kazakhstan and Russian Federation will lead the group of countries contributing to this increase.