Oil prices stabilise but supply issues send mixed signals

Oil prices are back above $70, but is this sustainable? The trader community appears split over oil’s course. Elsewhere, natural gas keeps its rally going, enjoying its time in the sun.

Oil trading

There appears to be a growing split in the oil trading community.

On one hand sits those who believe the OPEC+ engineered supply deficits will help foster high prices as demand recovers. On the other there are those traders who feel demand is being erased before it can reach its peak, thanks to growing Covid-19 cases and low vaccination rates worldwide.

How will this factor into oil prices? It’s hard to say at this stage. Current prices seem to sit around the fact traders have priced in the worst case scenario.

As of Tuesday, WTI futures were trading for around $71.6.

Brent contracts were exchanging hands for roughly $73.45.

Apart from rising cases in key importers, other factors at play here could put pressure on oil prices.

Supply squeezes maybe a recurring theme until the pandemic is over, even with OPEC & allies tapering up production by 400,000 bpd each month from now until April 2022.

One is China’s clampdown on import quota abuse. Authorities in the world’s largest crude importer are planning a crackdown on the misuse of import quotas. This may create a 20-year low in inbound Chinese oil shipments.

Looking to EIA storage data, inventories increased by 2.1 million barrels in the review period up to July 16th. At 439.7 million barrels, U.S. crude oil inventories are about 7% below the five year average for this time of year.

But there is positive news. Rig counts also continue to rise. Baker Hughes reports the total US oil & gas rig count has increased for the fourth consecutive week, indicating strong future output.

As of week-ending July 23rd, 491 rigs were active in US production areas – the highest level since April 2020. Seven oil rigs were added to counts, although gas rigs stayed static.

Natural gas trading

Natural gas started the week strongly, breaching the $4.00 level, and continuing gains made across last week.

Intense heat in key US geographies is helping power the rally as short-term cooling gas demand intensifies. European weather patterns, however, are trending towards cooler temperatures, which may lower demand here across the rest of the week.

As per Natural Gas Weather: “National demand will be strong this week as hot upper high pressure rules most of the US w/highs of 90s to 100s, including 95-100°F Texas.

“A stronger weather system w/showers and cooler air will push across the Great Lakes and Northeast late in the week and next weekend w/highs of 70s and 80s to ease national demand.”

While US oil rig counts have increased, according to Baker Hughes, gas rig counts have stayed static. As of week-ending July 23rd, 104 gas rigs were operating in key US gas production geographies.

US working gas in storage was 2,678 Bcf as of Friday, July 16, 2021, according to EIA estimates. This represents a net increase of 49 Bcf from the previous week. Stocks were 532 Bcf less than last year at this time and 176 Bcf below the five-year average of 2,854 Bcf. At 2,678 Bcf, total working gas is within the five-year historical range.

OPEC+ deadlock unresolved – what does this mean for the oil trade?

OPEC & allies are yet to reconvene its July meeting as supply pressures mount on the cartel. Will we see the deadlock broken soon?

Oil trading

A week on from OPEC and allies breaking up production tapering talks, the deadlock doesn’t look like it’s going to be shifted soon. The window for higher output in August is closing. This comes despite clamour from the cartel’s various members to take advantage of strong oil prices.

Saudi Arabia and the UAE remain at loggerheads over production volume increases. However, both have locked August supply volumes in with their respective customers.

An upcoming Islamic holiday, coupled with fixed August sales, means reconvening OPEC+ if an accord is reached is unlikely to happen until the end of July or even early August. As it stands, output will remain the same in August as it was in the previous months – assuming OPEC members and allies don’t just go rogue and start pumping more to take advantage of high oil prices.

And there’s the rub. Part of the reason why oil prices are so strong is OPEC & allies finding common ground and tapering production gradually instead of flooding markets with crude.

At the time of writing, oil prices for WTI and Brent had peeled away from highs seen last week but are still performing strongly. WTI futures contracts are at the $74.39 level.

Brent crude is currently trading for $75.45.

August will likely be a story of tighter global supply meeting high worldwide demand. The Biden White House has advised OPEC+ to find a way through and begin its proposed 400,000 bpd production increase.

This comes as EIA data for week ended July 2nd saw one of the highest drops in US crude inventory stockpiles since 2019.

Crude inventories fell by 6.9 million barrels to 445.5 million barrels in the review period, reaching their lowest levels since February 2020. This beat analyst expectations, which forecast a 4m barrel drop.

Gasoline demand surged to a one-week record, but the four-week average of gasoline supplied was at 9.5 million bpd, the highest since October 2019. That helped lower gasoline stocks by 6.1m barrels.

Perhaps in response to the OPEC tussle, or because the conditions are brightening for domestic oil producers, the US rig count has increased for the second week running this week.

According to Baker Hughes, the number of operational US rigs is at its highest level since April 2020 with 378 currently operating.

Natural gas trading

Natural gas started the week on a strong footing, with prices staying above the $3.70 level.

Hotter weather this week into next is expected to cater to heightened cooling demand, as per Natural Gas Weather.

NGA says: “National demand will increase this week as upper high pressure builds back across the East with highs of upper-80s to 90s, while still hot to very hot over the West into Texas and the Plains with highs of 90s to 110s. A weather system with areas of showers will stall over the South Great Lakes and East-Central US with highs of 70s to lower 80s for locally lighter demand.

“National demand will ease late next weekend as weather systems over the Great Lakes and East cool highs into the 70s and 80s, although still hot over the West, Texas, and Great Plains. Overall, national demand will be high this week.”

Broadening the view, the EIA is predicting a decline in natural gas consumption throughout the US in 2021. According to recent research by the energy body, US natural gas consumption averaged 83.3 Bcf per day in 2020 – down 2.2% from 2019. The drop was partly driven by a fall in natural gas used to generate electricity, which was a result “demand destruction” the EIA says.

The energy authority believes consumption will have fallen 1.1% overall by year-end 2021 but will rise by 0.7% across 2022.

Working gas in storage was 2,574 Bcf as of Friday, July 2nd, according to EIA estimates. This represents a net weekly increase of 16 Bcf. Stocks were 551 Bcf less than last year at this time and 190 Bcf below the five-year average of 2,764 Bcf.

Baker Hughes reports the gas rig count has increased. 101 US natural gas rigs are now currently operating in key production areas.

Travel stocks rally, China PPI shrugged off for now

Morning Note

European markets opened mixed but broadly remain calm as they have for the whole week. Everyone’s waiting for signals on inflation – investors seem to be largely shrugging one from China today. Having led the way higher yesterday, the FTSE 100 is weaker today, whilst European indices are just in the green as they chop sideways ahead of tomorrow’s ECB and US CPI double-header. The Tiggerish outgoing chief economist of the Bank of England, Andy Haldane, said this morning that the UK economy is going gang-busters and inflation pressures are strong.

 

It was a mixed bag over the US in yesterday’s session as the Dow slipped a modest 30pts, the S&P 500 stayed flat as it struggles to make a new all-time high, and the Nasdaq rose 0.3%. The S&P 500 rose by less than 1pt to 4,227.26, a whisker below the record 4,238.04 reached on May 7th. 10yr Treasury yields slipped to 1.513%, the lowest level in a month. Remember payrolls data last week showed strong but not too strong job creation – enough to keep tapering talk at bay, or at least so the market seems to think. Yesterday’s huge JOLTS jobs openings report highlighted that the US economy is booming but a shortage of the right labour in the right places could a) force up wages and b) restrain growth (stagflation?). But, in the words of Mario Draghi, this is a ‘high class’ problem to have.

 

China’s producer price index, a key leading indicator of global inflation, rose at its fastest pace in 13 years as base effects from last year’s pandemic and a boom in commodity prices fed into higher prices paid by businesses. PPI in China rose at 9% in May, the highest it’s been since 2008, and a signal that inflationary pressures are not going away soon. It’s not a major surprise – expectations were for 8.5%: we know inflation is here right now. The question remains about the degree to which this is a transitory force or a lasting shift. There is another question: can companies pass these on to the consumer? If so, it runs the risk of stagflation; if not it could means slowing earnings growth. Does this favour the value trade still? We’ve seen a big rotation already, but growth and inflation this year ought to continue to be supportive. Cathie Wood of Ark thinks otherwise. “The rotation back to growth is probably close at hand,” she said at an Ark Invest webinar on Tuesday.  

 

Travel stocks popped up a touch on news the EU parliament has approved vaccine passports to ease travel this summer. We saw the likes of TUI, IAG, EasyJet and Ryanair all jump as the news broke on the wires. WH Smith also ticked higher, dependent as it is now on travel sales. SSP, the operator of food and beverage outlets in travel locations worldwide, should also be pleased. It reported a £300m loss this morning as revenues declined by almost 80%. Management say they don’t think sales will return to pre-Covid levels until 2024. Shares dropped at the open on the big loss but turned higher as the EU travel news broke. Meanwhile, the US eased travel restrictions for 61 countries, but not the UK. Nevertheless, there is a real sense that vaccines are working to open up the US, EU and UK to travel this summer, albeit not quite how it once was.

Oil pushed to fresh highs ahead of the EIA inventory report later and tomorrow’s OPEC monthly report. WTI drove on beyond $70 to mark an almost-three-year high overnight amid encouraging signs of demand recovery. Meanwhile fears of Iranian supply hitting the market later this year subsided after the US secretary of state Anthony Blinken said hundreds of sanctions would remain on the regime in Tehran, even if the two countries reach a nuclear deal. Whilst vaccines and the reopening of economies have left the market in deficit, helping to drive prices up 35% this year, the persistence of cases in some parts of the world combined with ongoing travel restrictions in Europe/US means there are still doubts about how quickly demand will recover this year.  Nevertheless, prices hit their highest since Oct 2018 after the API reported a draw of 2.1m barrels last week. 

Thursday sees the release of the latest OPEC monthly oil market report.  Last month’s report saw the cartel reiterate its belief in a strong recovery in world oil demand in the second half of 2021. This month’s report is not expected to show much change from the previous version, which said demand will rise by 5.95m bpd this year, up 6.6% from 2020 levels. Ahead of this, traders will look to today’s inventory report from the Energy Information Administration (EIA). Last week’s EIA inventory report showed stockpiles declined by 5.1m barrels, a larger-than-expected draw that helped to support the bullish view on oil prices as demand in the US recovers. Analysts expect a draw of 3.3m barrels to be posted today.

Elsewhere, Bitcoin trades at $34k after touching $31k yesterday. A SEC official expressed concern about the US financial regulator’s push to enforce stricter rules around cryptos. GBPUSD continues to hold below 1.42, but a breakout of the triangle to the upside needs to be monitored with MACD (1hr) crossover still supportive of a nudge up to 1.42 – failure at 1.4180 could beget a drop to the 1.4120 area.

Oil runs into resistance at $70 ahead of OPEC, inventory reports

Oil tested big resistance at $70 this week as prices hit their highest since before the pandemic, however a lack of momentum has seen WTI ease back ahead of the OPEC monthly report this week and the usual EIA crude oil inventories report. 

Three-year high for WTI

WTI and Brent contracts rose sharply last week to make new highs as OPEC+ stuck to its plan to only slowly raise the level of output through to July. Whilst vaccines and the reopening of economies have left the market in deficit, helping to drive prices up 35% this year, the persistence of cases in some parts of the world combined with ongoing travel restrictions in Europe/US means there are still doubts about how quickly demand will recover this year.  

Nevertheless, prices hit their highest in almost three years on Monday as the situation in India in terms of covid cases seemed to improve, whilst the post-OPEC bounce held firm. 

Thursday sees the release of the latest OPEC monthly oil market report.  Last month’s report saw the cartel reiterate its belief in a strong recovery in world oil demand in the second half of 2021. This month’s report is not expected to show much change from the previous version, which said demand will rise by 5.95m bpd this year, up 6.6% from 2020 levels. 

Ahead of this, traders will look to Wednesday’s inventory report from the Energy Information Administration (EIA). Last week’s EIA inventory report showed stockpiles declined by 5.1m barrels, a larger-than-expected draw that helped to support the bullish view on oil prices as demand in the US recovers.  

OPEC in control? 

The world’s largest oil trader said this week that the US has handed back control of the oil market to rivals. 

OPEC+ seem to have the handle on crude prices as S. production has failed to catch up to pre-pandemic levels, Mike Muller, Vitol’s head of Asia, said at an online conference. “There’s a perception in the market that control is with OPEC+,” Muller said at the Gulf Intelligence event. “It will take a long time for US oil to come back.” 

Meanwhile traders are also eyeing Iranian oil coming back on stream as a potential nuclear deal moves tentatively closer.  

Oil prices high ahead of OPEC-JMMC meetings

OPEC-JMMC meeting comes this week with oil prices starting on the front foot. Will we see any drastic policy changes from the cartel? Meanwhile, the transition from heating to cooling system continues in natural gas markets.

Oil trading

WTI and Brent contracts start the week strongly, reaching over $67 and $70 respectively.

Robust demand growth is powering oil prices. OPEC and allies’ optimistic outlook regarding global oil demand is ringing true, particularly in importers with strong vaccination programmes.

Even the potential addition of fresh Iranian crude onto markets should not be enough to destabilise worldwide supply/demand across the rest of 2021.

OPEC+ has put demand recovery at around 6m bpd, fuelled by increasing levels of domestic and international travel as global economies open post-lockdown.

OPEC & Allies kick off meetings on Wednesday, 2nd June. Markets anticipated no major changes to its production cuts policy. The cartel and allies have been gradually tapering up output levels for the past couple of months.

Wednesday’s meeting is all about cementing plans for July and August, i.e. whether to ramp up the taper or keep it in line with the cartel’s original direction.

The OPEC+ group is expected to confirm its May-July plan to ease the oil production cuts by the planned 840,000 bpd in July, OPEC+ delegates and two dozen analysts told Bloomberg News last week.

At this year’s April meeting, OPEC-JMMC agreed to bring 2.1m bpd, back to markets between May-July.

Turning to US crude oil inventories, the EIA reports a drawdown for the week ending May 21st.  Commercial crude oil inventories decreased by 1.7 million barrels from the previous week, reaching 484.3 million barrels. US crude inventories are roughly 2% lower than the five-year average.

Natural gas trading

Last week’s natural gas price plunge is being offset by perfect cooling gas demand temperatures and high LNG feed gas volumes in the US.

The EIA natural gas storage report for week ending May 21st showed an 115 Bcf injection that exceeded analysts’ high-end estimates and signaled weaker demand. Natural gas inventories totaled 2,215 Bcf.

Late season coolness including thunderstorms and rain will be hitting key demand areas of the US, Natural Gas Weather reports, which may lightly increase heating demand in the short term. This will be offset by warmer temps later this week, speeding along the transition to cooling season.

LNG feed gas volumes at Texan infrastructure is forecast to reach near-record levels again soon. Intense LNG demand from Asia could help drive liquid natural feed gas levels back towards the 11 Bcf level seen earlier in the year.

Indian oil demand in focus ahead of OPEC JMMC meeting

OPEC JMMC meets tomorrow with all eyes on India as coronavirus cases mount.

Oil trading

Oil prices started the week on the back foot, but have traded higher at the time of writing, following continued OPEC+ optimism in demand recovery.  WTI is back above $62. Brent is trading above $65 too.

Global demand is still forecast at around 6m bpd for 2021. The surplus built up throughout the pandemic is expected to be gone by the end of Q2 too. All good news, but we’re not out of the woods yet. OPEC+ has raised concerns over the situation in India.

Indian Covid cases are soaring again. 350,000 were reported on Monday 26th May, putting pressure on the Indian government to lockdown again. As India is the world’s third-largest crude importer, importing 4m bpd at peak, its current conditions point towards slower recovery.

Japan’s Covid cases are being carefully monitored from an oil perspective too. In the world’s fourth largest oil importer, cases have started to flare up again. Vaccine rollout there has been slower than expected.

Even so, we’re not anticipating any alteration to OPEC+’s recovery roadmap. Crude output is likely to increase in line with tapering agreements established at the general meeting earlier in the month. A further 2m bpd is being added back to production quotas between May and June.

Turning to US storage data, commercial crude oil inventories grew by 0.6 million barrels from the previous week, according to the EIA’s most recent report. At 493.0 million barrels, crude oil inventories are about 1% above the five-year average for this time of year.

However, gasoline stocks have fallen 3% below the five-year average for the first time in 2021, which could suggest more mobility for US citizens, and this higher demand for petroleum products moving forward.

Natural gas trading

Can you feel that tantalising hint of spring in the air?

Natural gas weather forecasters can. A “perfect weather pattern” is about to hit the US’ key demand areas. Colder temperatures are giving way to Spring warmth, ending heating degree day season. Cooling degree days are on their way, which is likely to play into lower demand from here on out.

Last Thursday’s EIA Natural Gas storage report stated rose by 38 Bcf for the week ended April 16, roughly matching S&P Global Platt’s 37 Bcf forecast by analysts increase.

Total stocks now stand at 1.883 trillion cubic feet, down 251 Bcf from a year ago but 12 Bcf above the five-year average.

More US LNG output could be on its way. Rystad Energy predicts record US natural gas production in 2022, at 93.3 Bcf annually. The figure may rise to 100 Bcf by 2024. Key gas basins may attract significant investment as a result.

Total US LNG output reached a record in 2019, at 92.1 Bcfd. Production declined in 2020 to 90.8 Bcfd thanks to the Covid-19 pandemic. Volumes may fall even further this year, down to 89.7 Bcfd, but that could reverse quickly once the pandemic subsides and activity picks up in US gas producing regions.

Can optimistic demand outlooks support oil prices?

Oil demand growth forecasts are higher. The glut is disappearing. Is it time to feel optimistic about oil markets again? Elsewhere, natural gas builds on heightened LNG feed gas volumes.

Oil trading

It’s been a choppy couple of weeks for oil, but, as of now, prices are starting to pick up again. WTI is trading at above $64 this morning. Brent is trading over $67. Will we see Brent breach $70 again soon?

It very well could do. There is a growing sense of optimism around oil markets this year. Global vaccination rollout is feeding into a quicker return to normality. Economic recovery is underway around the world too, driving oil demand upward.

Optimistic outlooks from the IEA and OPEC suggest demand recovery will increase in 2021, supported by rapid global economic growth. IEA puts world demand growth at 5.7 mbpd. The OPEC outlook suggests 5.95 mbpd, following the cartel’s decision to loosen its oil cuts and taper output upward towards June.

US commercial crude oil inventories decreased by 5.9 million barrels from the previous week, according to the latest EIA report. At 492.4 million barrels, US crude oil inventories are about 1% above the five year average for this time of year.

The oil glut that has built up across the pandemic appears to be over. In February, oil stocks fell for the seventh month in a row across OECD countries. In the IEA’s April Oil Market Report, data shows Industry inventories declined by 55.8 million barrels, or by 2 million barrels per day (bpd), during February, led by a sharp draw of 66.8 million barrels in product inventories.

OPEC and allies also committed to tapering up production volumes at its April meeting. Towards June, output will increase in line with demand expectations. OPEC+ producers will now add 2m/bpd to global supplies over the coming month. Saudi Arabia will also be unwinding its self-imposed 1m/bpd cut.

More oil will be hitting be on the markets soon. That should feed into stronger prices. Pre-pandemic oil demand is still some way off, but the optimism is there amongst oil’s key players.

Natural gas trading

Last week was a strong week for natural gas. Prices hit their highest levels since March, driven by higher LNG demand and cooler temperatures throughout the US.

LNG feed gas volumes are a key support. European and Asian imports are expected to keep demand high for feed gas. Volumes flirted with 2021 highs last week, reaching 11 Bcf.

US weather outlooks suggest cooler temperatures will remain throughout the next two weeks. Warmer spring weather will return by the end of the month.

EIA in its latest natural gas storage report says total stocks now stand at 1.845 Tcf: down 242 Bcf from a year ago but 11 Bcf above the five-year average. Domestic supplies rose 61 billion cubic feet (Bcf) for the week ended April 9.

Cryptocurrency update: mining woes, Bitcoin slips & ETH ETF break

Bitcoin prices take another massive slide this week. Could a blackout in Chinese data centres be responsible? Away from BTC, three new Canadian ether-focused funds will debut this week.

Cryptocurrency update

Bitcoin takes a tumble

Things move fast in the world of cryptocurrency. It was only last week we were predicting Bitcoin to build on recent gains and start eyeing up all-time highs again. Well, flash forward to this week and all that has changed.

Bitcoin prices have tumbled since last week, dropping from over $60,000 to $52,000. At one point, $4bn in active BTC positions was liquidated. Strong stuff. As of now, BTC futures are trading around $57,000 – but still some $4,000 off the $64,000 level seen on April 14th.

As with all major BTC price swings, we find ourselves scratching our heads and asking why? There are a lot of moving parts at play here.

One potential cause is the Coinbase IPO juicing cryptocurrency markets on the whole. The world’s largest crypto exchange went public last week, and prices were being supported by the move. The Coinbase listing has been viewed as another mark of legitimacy for digital currencies, but the market froth generated may have had an adverse effect on BTC prices.

Then there is regulation. While we’ve touched on institutional legitimacy, i.e. banks and companies hurling billions into new crypto services or buying tokens themselves, but regulatory bodies still aren’t sure. India is possibly going to ban crypto trading. Turkey already has.

There are also rumours that the US Treasury is about to slap several financial institutions for money laundering using cryptocurrencies.

Essentially, a myriad of reasons could be behind the latest BTC price fluctuation. We’ve come to expect volatility in crypto markets, so this is nothing new. It will be interesting watching the market to see how fast it recovers though.  Grab your popcorn and settle in.

Bitcoin hash rate drops thanks to China blackouts

Bitcoin prices will also have been affected by a slowdown in the bitcoin mining hash rate.

In a meeting of physical mining meeting digital mining, a gas explosion at a Chinese coal mine has allegedly resulted in several Bitcoin miners halting production.

Despite cryptocurrency mining not involving any physical labour, data centres have been closed to facilitate “comprehensive power outage safety inspections”, following a spate of coal mining accidents in the Xinjiang region of northern China.

Hash rate is the computational power needed to mine Bitcoin tokens on the currency’s blockchain. At the time of the accident on Friday 16th April, the global rate had dropped 25%. Less computing power means less opportunities to mine BTC tokens. The supply of the already limited currency has taken a hit.

Normally, a supply squeeze would help increase prices (scarcity + demand = high price). In this case, it appears the hash rate slump has affected the BTC price slump because it has removed mining capacity from the global network. While this is offline, mining could potentially either slow to a crawl or stop altogether.

Several major Bitcoin mining pools were hit by the power outage. Antpool’s hash rate had crashed by 24.5% in a 24-hour period, Binance Pool by 20%, BTC.com by 18.9% and Poolin by 33%.

The Xinjiang and Sichuan regions of China combined account for more than 50% of the overall Bitcoin mining hash rate. Operations based in China comprise the majority of global mining power. That partly explains the major impact such a shortage is having on BTC prices.

Three Ethereum ETFs get Canadian approval

While BTC might grab the headlines, it’s important to remember there are other cryptos out there building momentum. Ether (ETH) is the second most popular token for traders and users worldwide, and it may have just got easier to trade.

Canadian authorities have approved three new ETH-focused ETFs and they will launch on TSX on April 20th.

The three new ether-based ETFs will be provided by CI Global Asset Management, Purpose Investments, and Evolve ETFs. Both Purpose and Evolve already sponsor crypto ETFs, whereas CI will be a newcomer, backed by Galaxy Digital.

It appears that the logic to approving all three at once will be to provide more options for investors, rather than allowing a single fund to get a head start over its competitors.

Canada is becoming a bit of a cryptocurrency ETF bellwether. Alongside these three new ETFs, three Bitcoin exchange traded funds are currently listed on Canadian exchanges, including a fund run by Purpose Investments.

South of the border, the Securities and Exchange Commission (SEC) has yet to give the green light for any crypto ETFs. Eight funds are currently in the application stage. Perhaps Canada’s confidence in these investment vehicles will feed into SEC decision making?

Middle East tensions could support oil prices

Militant attacks on Saudi oil infrastructure may support prices this week while natural gas markets prepare for cold weather in the coming weeks.

Oil trading

WTI and Brent traded slightly higher on Monday, with WTI poised to break $60 after a week of floating around the $59 region.

We’ve had reports that further price action will be largely related to US vaccine rollout and Covid-19 management in the short term. Rising cases stateside, plus snags in vaccine supply chains, may put a bit of pressure on demand recovery in the world’s largest economy going forward. The quicker the US returns to normality, it’s not too much of a stretch to suggest the quicker the oil market rebalances too.

At 498.3 million barrels, U.S. crude oil inventories are about 3% above the five year average for this time of year, according to EIA report for week ending April 2nd. Over the past four weeks, crude oil imports averaged about 5.8 million barrels per day, 5.0% less than the same four-week period last year.

Away from the US, tensions in the Middle East may put a support under prices. Houthi militants from Yemen have stated they have launched 17 drone and two ballistic missile attacks on Saudi targets recently.

Two of the targets are Aramco facilities in Jubail and Jeddah. Aramco’s refinery in Jeddah was decommissioned in 2017 but it has a petroleum products distribution plant there that the Houthis have previously targeted.

The Saudi government has yet to respond, according to Reuters, but Aramco has said it will be committed to reopening targeted facilities as quickly as possible.

We’ve seen attacks from Yemen-based militant organisations on Aramco sites throughout the past couple of years. Each time, this has given a little bump to oil prices, thanks in part to the resulting small supply squeezes. Will we see the same here?

Natural gas trading

Natural gas prices moved higher at the end of last week and continued to do so on Monday, showing 1.46% growth.

Cold weather patterns about to hit key demand areas of the US could help support natural gas prices beyond the $2.50/MMBtu held level too.

EIA estimates that natural gas inventories ended in March 2021 at nearly 1.8 Tcf, which is 2% lower than the five-year (2016–20) average. Winter 20-21 saw more natural gas withdrawals and consumption thanks to plunging temperatures, but warmer temperatures this summer are likely to result in increased storage volumes.

After OPEC+, oil markets shift attention to US-Iran nuclear talks

Commodities

OPEC+ have taken a gamble on oil demand bouncing back this summer. The decision by the cartel and its allies to ease self-imposed production curbs helped push prices lower on Monday but a softer dollar and stronger US and Chinese economic data had by today (Tuesday) lifted the boats. WTI (May) advanced to aove $60 with Brent at $63 after both slid over $3 on Monday. 

Last week OPEC+ chose to reduce output restraint which is currently worth about 7 million bpd by 350,000 bpd in May, 350,000 bpd in June and by an extra 400,000 bpd in July. Saudi Arabia is phasing out its additional, voluntary cut of 1 million bpd. Taken together it adds about 2m bpd to global supply and was a surprise to the market since a rollover of existing cuts was expected given the caution displayed at the prior meeting one month before. 

OPEC and allies are confident of a recovery but rising coronavirus cases leading to new lockdowns are a worry. “Even in those sectors that were badly hit such as airline travel, there are signs of meaningful improvement,” Saudi Energy Minister Prince Abdulaziz bin Salman said at the opening session of the OPEC+ videoconference. 

Last week’s inventory data showed American refiners processed the most oil since the start of the pandemic as they prepare for a surge in flying and driving. And whilst European activity has been hit by rising cases and new lockdowns, demand from China looks solid. 

Attention now is shifting to the talks between the US and Iran over the 2015 nuclear deal, which if successful could introduce more crude to the market. 

However, in a note on Monday Goldman Sachs analysts said a recovery in Iranian crude exports would not amount to a major shock for oil markets. “With OPEC+ appearing to manage its exit for now, supply concerns will likely shift to the potential return of Iran to the JCPOA (Joint Comprehensive Plan of Action) agreement,” they wrote, noting that the path to an agreement would take months. 

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Marketsi
An individual approach to investing.

Whether you’re investing for the long-term, medium-term or even short-term, Marketsi puts you in control. You can take a traditional approach or be creative with our innovative Investment Strategy Builder tool, our industry-leading platform and personalised, VIP service will help you make the most of the global markets without the need for intermediaries.

La gestión de acciones del grupo Markets se ofrece en exclusiva a través de Safecap Investments Limited, regulada por la Comisión de Bolsa y Valores de Chipre (CySEC) con número de licencia 092/08. Le estamos redirigiendo al sitio web de Safecap.

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