Crude Oil Prices Falling, Traders Worry About Global Supply Glut

Crude Oil Prices Falling, Traders Worry About Global Supply Glut

Crude Oil Prices Falling, Traders Worry About Global Supply Glut

$USO, $OIL, $BHI

Crude Oil prices fell Monday in part by renewed concerns about the global supply glut after a meeting of the Organisation of Petroleum Exporting Countries (OPEC) producers failed to impress traders and investors.

May WTI Crude Oil fell 0.44, or 0.9%, to 47.53 bbl

May Brent Crude Oil fell 0.33 or 0.7%, to 50.47 bbl

Sunday, 5 representatives of countries that signed up to the OPEC output agreement, Kuwait, Algeria, Venezuela and non-OPEC nations Russia and Oman met in Kuwait to review the current levels of compliance.

While most members are sticking to an agreement to make production cuts, data suggests not all non-OPEC members are adhering to quotas.

Prices shifted lower Monday as that meeting provided little concrete news.

Those OPEC officials urged members to cut Crude Oil production in line with last year’s agreement, and said the compliance committee will meet again in late April to recommend to the cartel whether cuts need to be extended another six months.

The ability of individual producers to provide price support with cuts currently in place is limited unless a more collective statement is made.

A Key concern remains how long OPEC and other oil producers will be willing to support growth in US shale production. We see risks to US Crude Oil supply stacked to the Northside in the coming months Vs. our base case and if stable or higher prices materialize, each barrel produced in the US would in theory need to be offset by lower production elsewhere.

A report from Baker Hughes (NYSE:BHI) released Friday showed the number of active US Oil rigs rose 21 to 652 rigs last week, suggesting the likelihood of a rise in domestic production ahead.

The Oil drilling rig count has climbed every week this year so far, except 1.

The selloff in the Crude Oil markets was triggered by record high levels of US Crude Oil inventories, which are not meant to fade under The Trump Administration, which is working towards less energy dependency for the US

The renewed volatility in the Crude Oil market may come under control and return to stability as the major producing and exporting nations renew commitment with the directive of OPEC, to cut supply.

The Joint OPEC/Non-OPEC Ministerial Monitoring Committee, JMMC which convened in Kuwait City for its 2nd meeting last Sunday said many nations have started to comply.

OPEC indicated, in a statement, that based on the report of the Joint OPEC/Non-OPEC Technical Committee (JTC) for the month of February 2017, the cartel and participating non-OPEC countries have continued their progress towards full conformity with their voluntary adjustments in production.

JMMC was established following OPEC’s 171st Ministerial Conference Decision of 30 November 2016, and the subsequent Declaration of Cooperation made at the Joint OPEC/Non-OPEC Ministerial Meeting held on 10 December 2016; at which 11 non-OPEC oil-producing countries cooperated with OPEC Member Countries in a concerted effort to accelerate the stabilization of the global oil market through voluntary adjustments to peg combined output at around 1.8-M BPD.

The Organisation indicated that the resulting Declaration, which came into effect on 1 January 2017, is for six  months and is extendable for an additional six months, depending on the status of supply and demand, including global inventories. The JMMC expressed its satisfaction with the progress made towards full conformity with the voluntary production adjustments and encouraged all participating countries to press on towards 100 per cent conformity.

As at February 2017, OPEC and participating non-OPEC countries achieved a conformity level of 94%, an increase of 8% over the January 2017 performance.

This demonstrates the willingness of all participating countries to continue their cooperation.

The JMMC took note that certain factors, such as low seasonal demand, refinery maintenance, and rising non-OPEC supply, have slowed down the positive impact of the production adjustments on inventory draw downs. At the same time, the liquidation of positions by financial players in the market was also observed.

However, it was felt that the end of the refinery maintenance season and a noticeable slowdown in the US stock-build, as well as the reduction in floating storage, will support the positive efforts undertaken to achieve stability in the market.

In view of the above, the JMMC requested that the JTC with the OPEC Secretariat review the Crude Oil market conditions and revert to the JMMC in April 2017 regarding the extension of the voluntary production adjustments as stipulated in the Declaration of Cooperation, in order to ensure market stability.

The JMMC will deliberate before submitting its recommendation to the participating countries.

This reaffirms the commitment of OPEC and participating non-OPEC countries to continue to cooperate for the benefit of producers and consumers alike, as has been consistently advocated.

JMMC, led by its Chairman, HE Issam A. Almarzooq, Minister of Oil and Minister of Electricity and Water of the State of Kuwait, paid a courtesy call on the Emir of Kuwait, His Highness, Sheikh Sabah Al-Ahmad Al-Sabah, to thank him and his government for the support and guidance given OPEC in the run up to the historic OPEC decisions in November and December 2016 and pledged their commitment to the full and timely implementation of the decisions.

The Secretary General of OPEC, Dr. Sanusi Barkindo disclosed that production numbers for January and February were well received and the market has responded affirmatively to the determined efforts of all participating countries. “I want to emphasize here that some producers have over-performed. They certainly deserve recognition for their efforts. So I would like to expressly offer my appreciation to both Angola and Saudi Arabia for conforming beyond expectation.” I hope their achievements will motivate other participants to reach their own goals – and perhaps to even go further.”

“Meanwhile, some other countries have not been able to meet their production adjustments due to temporary difficulties. I would like to candidly say that, in general, more has to be done. We need to see conformity across the board. We assured ourselves – and the world – that we would reach our adjustment to 100% conformity. Our voluntary adjustment is and will remain 100%, and although this should be seen as a collective effort, individual countries also need to take their conformity very seriously. If we reach our common objective, we could see balance returning to the market by the third quarter of 2017. If not, this date may be pushed further out,” he added.

We have observed over the past couple of weeks, stocks remain high, particularly in the US, where a seasonally rising trend has hit new historically high marks.

We have also seen some traders liquidate their Long positions and Brent Crude prices have dropped from the mid-50’s to the low-50’s. Volatility has also increased.

HeffX-LTN Analysis for USO: Overall Short Intermediate Long
Bearish (-0.47) Bearish (-0.47) Bearish (-0.48) Bearish (-0.47)
HeffX-LTN Analysis for OIL: Overall Short Intermediate Long
Bearish (-0.46) Bearish (-0.41) Very Bearish (-0.50) Bearish (-0.47)

Stay tuned…

The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.