Oil in Global Economy Series: Key oil market updates

While the oil market continues to focus on supply/demand fundamentals, these are some key updates that you need to keep a tab on,

• U.S. oil rig count: The United States is continuing to see a surge in production. According to the latest report, the production is at 11.2 million barrels per day. Despite fewer rigs operating compared to 2014/15, the production efficiency has pushed the overall production higher.  As of the latest report, the numbers of operating rose to 873, the highest since March 2015. The numbers of operating rigs have increased more than 175 percent since bottoming in May 2016.
   
• Venezuela crisis: Crisis continues in Venezuela. According to the latest report, inflation has reached an all-time peak of one million percent. Reports suggest that payment starved workers are quitting Venezuela’s oil production, which is dwindling production further. However, the country’s leadership has been trying to overcome the trouble using cryptocurrencies as a means to fund the country. The reelection of Maduro resulted in stronger sanctions from the United States. In addition to that, Venezuela’s state-owned oil producing company PDVSA announced that it would not be able to meet supply contracts as production dwindle. Oil refineries continue to shut down due to lack of crude oil supply. In the next few months, Venezuela’s production is expected to decline to 1 million barrel threshold. In the latest move, Venezuela has introduced a new sovereign bolivar, which will be supplied by the central bank beginning August 20th. The government has lined the new currency with its already introduced cryptocurrency petro. President Maduro has also transferred the country’s oil reserves to the central bank. Venezuela has the biggest oil reserve in the world, surpassing Saudi Arabia. The residents are still struggling with the introduction of the new ‘Boliver’ as the currency, which has been linked to the country’s cryptocurrency ‘Petro’. According to latest surveys by OPEC, oil production has declined to a new low of 1.197 million barrels per day in September.
   
• Libya: As expected, according to a Bloomberg survey Libya’s production has reached 0.97 million barrels per day in August. The recent violence has somewhat subsided but reports suggest that both sides have started implementing the security arrangements. Libya is likely to hold the general election on 10th December 2018. Germany has agreed to provide €2 million in assistance. As expected the production reached to 1.05 million barrels per day in September. Libya’s production is likely to move higher.
   
• Iran: As the U.S. sanctions on Iran mount up, several European companies have officially announced withdrawal from Iran despite the European Union passing a provision which prevents European companies from abiding by U.S. sanctions. The European Union has announced a €18 million aid package to offset the impact of U.S. sanctions, however, Iranian foreign minister said that the country is still waiting to receive oil guarantees. At the UNGA, EU announced the creation of a special purpose vehicle to bypass the U.S. sanctions. As the International Court of Justice (ICJ) ruled against the United States in a petition filed by Iran, saying that it is violating U.S.-Iran Treaty of Amity of 1955, the U.S. announced that it is exiting the treaty. Iran is currently using ghost ships (that turn off tracking device) to export so of its oil to escape sanctions. Next round of Iran sanctions is set to go into effect in the first week of November.
   
• OPEC & Russia & Saudi Arabia: The OPEC group agreed to production increase by easing the ceiling. However, confusions remain over the increment size. The OPEC statement suggested full compliance to 100 percent from current 147 percent. According to OPEC’s MOMR, OPEC produced around 32.57 million barrels of crude oil per day in August. Bloomberg Survey suggests that production could be as high as 32.89 million barrels per day. According to a Reuters’ survey, the production increased by 90,000 barrels per day in September. While Saudi Arabia announced that it has almost 2 million barrel per day of spare capacity, OPEC announced that there isn’t much spare capacity and further investments required to increase it. In September, OPEC production rose to 32.76 million barrels per day.
   
• Saudi Arabia and Trump: During a meeting between oil giants like Russia and Saudi Arabia, Saudi oil minister seems to have defied U.S. pressure to pump more oil as he announced that Saudi Arabia has no plans to increase production further. However, in September, Saudi production rose to 10.51 million barrels per day. With regard to the recent crisis over the murder of Washington Post reporter Jamal Khashoggi at Saudi Consulate in Istanbul, Saudi Arabia said that it won’t use oil price as a diplomatic tool.
   
• Russia production: According to reports, Russia’s oil production is set to reach new post-Soviet era high by the end of the year.
   
• Norway: Norway’s oil production is reportedly declining at a fast pace. In September, Norway produced around 1.302 million barrels of crude oil per day, almost 10 percent lower compared to last year.
   

Key global oil benchmarks:

WTI - $69/barrel

Brent - $79.6/barrel

OPEC basket - $78.1/barrel

Urals - $77.1/barrel

Oman - $78.2/barrel

Dubai - $77.8/barrel

Western Canada Select - $25/barrel