Member Info for spights

A very good morning meoryou

Positives vibes coming your way

Onwards and upwards:)))))

OPEC Cut Failed To Lift Oil Prices, But The Year Isn’t Over Yet

By Irina Slav - May 15, 2023, 7:00 PM CDT

Oil prices have seen a 4-week losing streak.

Recession fears continue to weigh on sentiment in oil markets.

Many analysts continue to see a tighter oil market in the second half of 2023.

Again , that was before the OPEC+ additional cut announcement that temporarily boosted prices. And it might well boost them once again as the year progresses. All it would take would be a more optimistic economic update from either China or the United States.

Of course, all these are only projections based on historical data and some common sense. The thing about markets, however, is that they do not always obey common sense but tend to get swayed on a dime.

The past four weeks are evidence of that, with oil traders largely ignoring any fundamentals to focus on what banks call the macro picture. They have ignored data about Chinese refinery throughputs and oil imports to focus on the latest PMI, which has shown a contraction in the country’s growth pace. They have ignored data about U.S. production trends to focus on the April CPI reading, which showed inflation remains a substantial problem.

All this is perfectly understandable: the so-called macro picture has a huge bearing on oil demand, which tends to decline in times of high inflation and rising interest rates. The thing that gets forgotten, however, while watching that macro picture is that oil, for all its bad rap, is what economists call an inelastic commodity.

This means that whatever the price for the commodity, there will always be strong demand for it. And this, in turn, means that it might be time for traders to focus a bit more on the supply outlook. Because when supply tightens, prices will rise—demand will be going nowhere, even in inflation-stricken U.S.

What’s more, as ING noted in its oil market update, OPEC+ is aware of the power it can wield in output control. There is nothing to prevent it from doing it again should prices fall too low for its liking. After all, how much market share can it lose?

Crude oil prices have been on a losing streak for four consecutive weeks now, erasing all the gains they booked after OPEC’s latest supply cut announcement as economic fears take precedence over demand expectations.

When the cartel announced the cuts, almost every bank with a commodities department rushed to update their price forecasts, expecting prices to jump even higher than before. Morgan Stanley was a rare exception: it revised its price forecast for oil downwards.

“OPEC probably needs to do this to stand still,” Martijn Rats, chief commodity strategist at the investment bank, said at the time, adding that the OPECc+ decision “reveals something, it gives a signal of where we are in the oil market. And look, let’s be honest about this, when demand is roaring…then OPEC doesn’t need to cut.”

He seems to have been right, for the most part. Only it’s not demand itself that was the problem. It has been the popular expectation of worsening demand that has been driving the price decline.

Indeed, the daily media updates on oil prices have, in the past four weeks, repeated the same refrain over and over again: weak U.S. and Chinese economic data, fears of more interest rate hikes in the U.S., fears of a recession, which is already a fact in certain industries, notably freight transport.

Related: U.S. Gasoline Prices Are Set For A Significant Decline

Clearly, these expectations have had a sound basis. The thing about oil demand, however, is that the U.S., or the rest of the developed world, is not where additional oil demand will be coming from in the rest of the year and future years. It’s the developing world that will see growth in oil demand with the potential to drive prices higher.

Dutch ING said in a recent oil market update that while oil prices remain depressed for now, things could very well change in the second part of the year, with a deficit looming on the horizon.

The basis for this forecast is a combination of lower OPEC+ output, higher demand outside the OECD, and a smaller-than-expected growth in U.S. output, according to ING. What’s more, there is always the possibility that OPEC+ will cut output again, adding to oil’s upside potential.

The Dutch financial services major is not the only one expecting higher prices later this year. Citi’s commodities head Ed Morse recently told CNBC that oil prices may have bottomed out, and we’re entering peak demand season in the much more populated northern hemisphere.

“OPEC+ output cuts and a rebound in China’s demand will likely offset slower demand elsewhere ... Therefore, we expect prices to bottom out soon,” the Commonwealth Bank of Australia said in a note from early May.

Goldman is another bank that’s optimistic about the immediate future of oil prices. In a note from early March—weeks before the surprise OPEC+ cut announcement, the bank said Brent could reach $100 by the end of the year if OPEC keeps its 2-million-barrel ou

75.32$

BP refuses increased payouts for pensioners

Posted 2023-05-15, The Times/The Sunday Times

BP has rebuffed an appeal from its pension trustees to increase payouts to help thousands of retired staff to manage the

"challenging set of circumstances"

raised by the energy crisis from which it has generated record profits

Https://oilprice.com/Latest-Energy-News/World-News/ONEOK-And-Magellan-Merger-To-Create-60-Billion-Pipeline-Giant.html

Meoryou have gremlins today grrrrrr

Onwards and upwards

Hoping for a better week :))

74.35 $

Positive :))))

Gremlins with google

Showing US prices

Https://www.livecharts.co.uk/MarketCharts/brent.php

UK economy shrank 0.3% in March, ONS figures show

UK economy shrank 0.3% in March, ONS figures show

74.63$

Https://www.livecharts.co.uk/MarketCharts/brent.php

Saudi first, UAE second, Kuwait third."

"Drill, baby, drill" will be the first order of business for Donald Trump should he be elected president, the former president said at a Republican presidential town hall on Wednesday.

Asked about what would be the first thing he would do to cut food and gasoline costs, Trump simply said, "Drill, baby, drill."

Trump is leading in the polls of Republicans for their preferred nominee for next year's presidential election with a wide margin ahead of the nearest potential nominee, Florida Governor Ron DeSantis.

Still, U.S. shale firms are much more disciplined since Trump's stay in the White House, so another term of a President Trump may not be enough to spur a shale revolution 3.0., even if the current regulatory uncertainty goes away. But it certainly can't hurt, and oil prices were already feeling the pressure at just the mention of a return to "drill, baby, drill" mode.

This year, U.S. shale production continues to grow but at a much slower pace than before. A combination of cost inflation and mixed messages from the Biden Administration have left some observers worried about the prospect of peak production.

Shale executives say that peak Permian production will occur this decade.

This could lead to structurally higher prices at the pump as consumers will feel the pinch from U.S. shale losing global market share at the expense of OPEC, which is only set to increase its control over global oil supply.

The new priorities of the shale patch—capital discipline and a focus on returns to shareholders and debt repayments—have coupled with supply chain constraints and cost inflation to drag down U.S. oil production growth in recent months.

American oil executives already said in early March that OPEC is once again the most influential force in global oil supply, and will be so for the foreseeable future now that U.S. shale production growth is slowing.

Scott Sheffield, CEO at the largest pure-play shale producer, Pioneer Natural Resources, told the Financial Times earlier this year, "I think the people that are in charge now are three countries — and they'll be in charge the next 25 years."

Meanwhile, natural gas prices are expected to increase in the latter half of the year as Europe goes on yet another buying spree. Europe has failed to secure enough long-term LNG contracts to offset cut-off Russian gas imports, with Reuters predicting this may prove costly next winter and could sharply tighten the market. The European Union views natural gas as a bridge fuel in the transition to renewable energy, and buyers generally struggle to commit to long-term contracts. This means that Europe might be forced to buy more from the spot markets as it did in 2022, which in turn is likely to push prices up:

Crude oil inventories have fallen below the five-year average for the first time this year. Last week, implied gasoline demand rose by 992 thousand barrels per day (kb/d) w/w to a 15-month high of 9.511mb/d.

StanChart has predicted that the OPEC+ cuts will eventually eliminate the surplus that had built up in the global oil markets over the past couple of months. According to the analysts, a large oil surplus started building in late 2022 and spilled over into the first quarter of the current year. The analysts estimate that current oil inventories are 200 million barrels higher than at the start of 2022 and a good 268 million barrels higher than the June 2022 minimum.

However, they are now optimistic that the build over the past two quarters will be gone by November if cuts are maintained all year. In a slightly less bullish scenario, the same will be achieved by the end of the year if the current cuts are reversed around October. This should shore up prices.

According to StanChart, money-manager positions across the four main Brent and WTI futures contracts became shorter by 184.6 million barrels over the past two weeks.

It’s difficult to explain bearish sentiment at the moment, with fundamentals suggesting oil markets will tighten significantly over the rest of the year.

Natural gas prices are also expected to climb in the second half of 2023, which could spell trouble for Europe as it has failed to secure sufficient long-term LNG deals.

Join Our Community

The collapse of Silicon Valley Bank in March triggered massive capital flight from oil to precious metals as panic spread that this could be the early innings of yet another banking and financial crisis.

According to commodity analysts at Standard Chartered, the SVB collapse led to the fastest-ever move to the short side in oil markets, with speculative short volumes more than six times larger than those after the collapse of Lehman Brothers and Bear Stearns in 2008. Money-manager positions across the four main Brent and WTI futures contracts became shorter by a record 228.9 million barrels (mb) in the space of just two weeks.

Predictably, oil prices cratered to multi-year lows in a matter of days before mounting a half-hearted rally thanks to the 2nd of April decision of some OPEC+ members to make voluntary output cuts.

Unfortunately for the bulls, the shorts have now returned with a vengeance.

According to StanChart, money-manager positions across the four main Brent and WTI futures contracts became shorter by 184.6mb over the past two weeks, a pace only exceeded by the increase in speculative shorts after the SVB collapse, and at the start of the pandemic.

At this point, it’s not clear whether these sharp swings in the same direction are due to an over-reliance on similar algorithms by traders. And, just like us, StanChart says the excessive bearishness is overdone relative to underlying news flow and fundamental data.

Too Bearish

As we have pointed out before, it’s hard to find a proper justification for the growing bearishness in the oil markets. After a brief rally on Monday, oil prices have reversed course on Tuesday’s session despite oil markets still being in oversold territory. According to Standard Chartered, the bank’s proprietary U.S. oil data bull-bear index has been bullish for eight straight weeks with crude oil elements of the data the strongest thanks to inventories falling relative to the five-year average for the ninth time in 10 weeks.

The energy markets remain surprisingly resilient with oil inventories declining and demand in the pivotal Chinese market growing as domestic travel rebounds.

According to the International Energy Agency, global oil consumption remains on track to rise by 2M bbl/day this year to an all-time high 101.9M bbl/day. Inventories are gradually tightening and should deplete further as OPEC+ implements new production cuts. Crude oil inventories have fallen below