Oil continued to fall under the influence of supply growth from OPEC+

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In the past period, the world price of oil continued to fall under the influence of increased oil supplies from OPEC+, and also because of increasing uncertainty and political risks in the middle East. The growth of oil reserves in the United States supported the sale. Prices were supported by a slight cut in oil exports from Iran, and discussion of return to limit the supply of oil by OPEC countries+ 1-1. 4 million bar. a day.
Since the entry into force of US sanctions to Iran in early November, 2018 oil prices of different varieties has dropped by 12-18%, threatening to turn the uptrend. In August-October the White house exerted unprecedented pressure on the parties to the transaction OPEC+ with the aim of forcing the major manufacturers to increase the supply of oil under cruel sanctions against Iran and the expected withdrawal from the market of about 1.5 million bar. a day of Iranian exports.
In the result of OPEC countries and Russia has increased production for August-October by 2.2% (0,945 million bar. a day). According to rumors, the production Sadouskaya Arabia November rose to 11 million bar. a day. In addition, revised November estimate of U.S. Department of energy’s oil production, it was found that during August-October, oil production in the US also rose by 4.8% (0.52 per thousand. a day).
Thus, the market added in only three months, about 1.5 million bar. of oil per day. The “icing” of the situation was the resolution of the White house’s major buyers of Iranian oil continue shopping for another 180 days. In the result it became obvious that the oil market has suddenly formed in excess of 1.0-1.5 million bar. a day that caused a reaction on the part of the parties to the transaction OPEC+. Following the meeting of the monitoring Council members of OPEC+ came to the conclusion that it is necessary to renew the restriction of output and to expedite the conclusion of a long-term agreement to regulate the supply of oil.
Simultaneously, the Turkish Embassy of Saudi Arabia the scandal broke about appearing in the media the brutal murder of journalist Jamal Khashoggi, which actively binds the crown Prince of Saudi Arabia Mohammed bin Salman. It should be noted that the agreement OPEC+ in early 2016, made possible by the change of power in Saudi Arabia and coming to the crown Prince Mohammed bin Salman and his clan.
Last week it became known that some members of the ruling family of Saudi Arabia amid the indignation of the world community about the murder of a journalist in favor of not to allow to the throne of crown Prince Mohammed bin Salman. The king of Saudi Arabia is currently in old age, and the other members of the Royal family waiting for the moment to improve their situation. One option for the replacement of the crown Prince Mohammed bin Salman may become the clan of Prince Ahmed Ibn Abdul-Aziz, who, according to rumors, a high-ranking US officials have already pledged support.
It is not clear how far gone the situation with the removal from power of the crown Prince Mohammed bin Salman, but coups d’etat in a monarchy always turns out after the fact. As this Prince was originally on the side of the transaction OPEC+, and all the other clans Saudi princes were against it, then this event could significantly change the balance of power in the middle East and the situation in the oil market.
In this regard, before leaving the traders in the celebration of thanksgiving Day in the United States, there was a mass Exodus of institutional investors from long positions in the oil market that sent the previous fall in panic selling. Today the price drop continued.
As a result, the price of oil WTI last week dropped to $51.34 per barrel, Brent crude – to $59,28 per barrel and the market situation turned in contango. The spread between grades of oil as of November 22, 2018, made up of $8.9, the ratio of the spread to the price of WTI was 16.2%.
According to Goldman Sachs, in the coming weeks, the oil market will remain highly volatile, it is impossible not to agree, as next week is expected a lot of key events: the G20 meeting will be held November 30-December 1, 2018, the summit of OPEC in Vienna will take place on 6-7 December 2018. This could be a coup in Saudi Arabia before these events fundamentally change the rhetoric and the outcomes on these measures.
If the U.S. side will strengthen its position in the oil market, the achievement of any agreements with the Chinese or the Russian side will be impossible a priori. Moreover, it will be impossible the agreement OPEC to restrict production in case of change of opinion in Saudi Arabia.
In addition, the current policy of the U.S. Federal reserve, changes in the system of world trade and high oil prices together hamper economic growth worldwide, which has a negative impact on oil consumption starting this quarter. These risks are confirmed by representatives of the monitoring Committee at the November meeting. Falling stock markets additionally give market participants confidence in rolling the economy into recession and reducing oil consumption.
Thus, market volatility will remain high in the next two to three weeks, and the direction of motion can change dramatically depending on political developments. Clarity to the market situation may make the outcome of the G20 summit and the OPEC meeting in Vienna.
Oksana Lukicheva
Analyst of commodity markets,
“Opening Broker”