Crude Oil Rises as US Drilling Slows, Trump’s Sanctions Against Iran Loom

Crude Oil Rises as US Drilling Slows, Trump’s Sanctions Against Iran Loom

Crude Oil Rises as US Drilling Slows, Trump’s Sanctions Against Iran Loom

$USO, $OIL

Crude Oil prices rose Monday as US drilling for new production stalled and as the market eyed tighter conditions once Washington’s sanctions against Iran’s Crude Oil exports kick in from November forward.

US West Texas Intermediate (WTI) Crude Oil futures were at 68.19/barrel at 0344 GMT, +44c, or 0.65%, from their last settlement.

ICE Brent Crude Oil futures climbed 50c, or 0.65%, to 77.33/barrel.

US energy companies cut 2 Crude Oil drilling rigs last week, bringing the total count to 860, energy services firm Baker Hughes reported on Friday.

The US rig count has stagnated since May, after staging a recovery since Y 2016, which followed a steep slump the prior year due to declining Crude Oil prices.

Outside the United States, new US sanctions against Iran’s Crude Oil exports from November were helping drive up Crude Oil prices.

Energy consultancy FGE said several major Iran customers like India, Japan and South Korea were already cutting back on Iran Crude Oil.

“Governments can talk tough. They can say they are going to stand up to President  Trump and/or push for waivers. But generally the companies we speak to … say they will not risk it,” FGE said.

“US financial penalties and the loss of shipping insurance scares everyone,” it said in a note to clients.

With US rig activity stalling and Iran sanctions looming, the Crude Oil market outlook is tightening.

“Investors have largely turned positive again … likely welcoming the return of backwardation,” said a commodity analyst at Emirates NBD bank.

Backwardation describes a market in which prices for immediate delivery are higher than those for later dispatch. It is considered a sign of tight conditions giving traders an incentive to sell Crude Oil immediately instead of storing it.

The ICE Brent Crude Oil backwardation between October this year and mid-2019 is currently around 2.20/barrel.

While Washington exerts pressure on other countries to fall into line and also cut imports from Iran, it is also urging other major producers to raise their output in order not to create too strong a price spike.

US Energy Secretary Rick Perry will meet counterparts from Saudi Arabia and Russia Monday and Thursday, respectively, as The Trump Administration seeks the world’s biggest exporter and producer to keep output up.

The Key question going forward is how demand develops amid the trade dispute between the United States and China, as well as general emerging market weakness.

Asian shares started the week in the Red Monday, faltering for the 8th day running, as President Donald Trump threatened yet more import tariffs on Chinese goods.

Consultancy FGE warned that “trade wars, and especially rising interest rates, can spell trouble for the emerging markets that drive (Crude Oil) demand growth.”

Despite this, FGE said the likelihood of significantly weaker Crude Oil prices was relatively low as the Organization of the Petroleum Exporting Countries (OPEC) would withhold output to prevent prices from plunging.

“We see $65/barrel as a trigger for cuts,” FGE said.

Have a terrific week

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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