Oil takes hit on supply expectations

Commodities

Oil prices continue trending downward as supply worries start to seep into traders’ minds once more.

Oil trading

Prices slide as supply outlook shifts

Oil weakened over the weekend and continued to edge lower on Monday morning this week. Supply-side issues are contributing to a bearish atmosphere for oil traders right now.

Taking a quick look at the WTI and Brent benchmarks shows how the current scenario is weighing on price action.

WTI, for example, drifted below $79 on Monday although it did climb back over $80 in early trading on Tuesday morning.

Brent crude hit a low of $80.66 on Monday morning. As of Tuesday 16th November, the North Sea benchmark had climbed back to $82.60.

One of the bi catalysts for the poorer price activity is supply issues. America isn’t getting enough oil and consumers are starting to feel the pinch at the pumps.

The US holds a pretty privileged position and thinks it deserves low gasoline. You would have thought the 1973 oil crisis, which should really have been the death knell for gas guzzlers, would have been a wake-up call, but nearly 50 years later and Joe Sixpack still thinks his Ford Ranger V8 requires the cheapest gas available.

As such, the US may need to start dipping into its strategic gasoline reserve. President Biden is being urged by Senate Majority Leader Chuck Schumer to open up those stored barrels and let the crude flow.

“No industry is spared. But fuel gasoline is the worst of all,” Schumer said. “Let’s get the price of gas down right now. And this will do it.”

If that does occur, then crude prices may drop.

Baker Hughes’ rig count showed four more US rigs came online in the week ending November 12th – hinting at higher American supply. Maybe the US just has to be patient?

We’ve also seen OPEC+ modify its supply outlook somewhat. The cartel slashed its Q4 demand outlook by 330,000 bpd last week. That said OPEC+ is allegedly not worried about the US heading into its strategic oil reserve. Oman’s Energy Minister Mohammed Al-Rumhi has indicated the group of oil-producing nations won’t be moved by Biden’s pleas for more crude.

However, there are signs from some top OPEC players 2022 might be a difficult year for oil.

Russia and Saudi Arabia fear crude oil oversupply next year

“Everybody is predicting a surplus of supply starting from the first or second quarter,” next year, Russian Deputy Energy Minister Pavel Sorokin told Bloomberg at Adipec, the oil industry event in Abu Dhabi, this week. “Inventories have stopped drawing, which shows there is no deficit at the moment.”

That said, everyone who spoke to OPEC insiders at Adipec said the cartel was essentially sticking to its guns. OPEC+ will keep raising crude oil production by 400,000 bpd until April 2022 at the earliest. The crude must flow.

But he who controls the crude controls the universe. For many in the oil trading world, that He is Saudi Arabia. What’s the word from the OPEC+ top dog? 400,000 bpd is “enough”.

“We need not to panic,” Saudi Energy Minister Prince Abdulaziz bin Salman said. “We need to be calm.”

We saw last week oil get a boost from OPEC+’s decision to keep its production increases steady and not bow to outside pressures.

A glut would be bad news for oil prices – especially in the wake of rising global COVID-19 cases. China is tackling its largest Delta variant breakout to date while parts of Europe have sunk back into local lockdowns. Danger signs are starting to flash again. As we head into the winter months, there’s a real danger cases could rise exponentially across the Northern Hemisphere. That would weigh very heavily on oil demand.