Oil benchmarks are moving higher with pace as supply/demand fundamentals are catching up amid geopolitical uncertainties surrounding Venezuela, Libya, and Iran.
Key factors at play in the crude oil market –
- OPEC and non-OPEC members decided to cut oil output by 1.2 million barrels per day, where OPEC would bear 0.8 million supply cut, and the rest would be borne by the Russia-led non-OPEC. According to OPEC’s monthly oil report, the supply dwindled by almost 0.8 million barrels in January, and OPEC as a whole is almost 80 percent compliance with the new agreement. In February the production has declined further by almost 220,000 barrels per day as OPEC reaches 93 percent compliance. OPEC reached over-compliance in March as production dwindled by 0.534 million barrels per day. In April, the production was broadly unchanged at 30.03 million barrels per day. In May, the production declined further 29.88 million barrels per day.
- The tense situation between the U.S. and Iran reached a new boiling point as the U.S. and its allies blamed Iran for the recent attack on oil tankers near its maritime borders. The world is fearing a military intervention by the United States in the region, which has been increasing military presence in the region. However, President Trump has shown significant restraint after Iran downed one American spy drone by not choosing to attack, which might have killed 150 Iranians.
- The crisis continues in Venezuela as oil production dwindled to 0.74 million barrels per day in May.
- The recent uncertainties surrounding Sino-American trade negotiations, where the U.S. announced 25 percent tariff on $200 billion worth of Chinese goods. China retaliated announcing tariffs on $60 billion worth of goods. The tensions are on the rise as both sides prepare to hurt the other. The United States is planning to impose 25 percent tariffs on the next tranche of Chinese goods worth $300 billion, whereas China is threatening the United States with rare earth exports. China will also unveil a list of U.S. companies that might face greater scrutiny. However, recently there has been some optimism, as President Trump and Xi have agreed to meet on the sidelines of the g20 meeting in Japan, later this week.
- U.S. Crude oil production has reached a new record high of 12.4 million barrels, well before EIA’s own projection.
- CFTC report shows that fund managers and hedge funds are increasingly bullish on oil However, long positions have declined in recent weeks. Speculators are net long 363K contracts, down 161,000 contracts since April. Last week, net position rose by 12,000 contracts.
- API reported a draw of 7.55 million barrels of crude oil. Gasoline saw a build of 0.22 million barrels.
Key global oil benchmarks:
- WTI - $59.5/barrel
- Brent - $66.3/barrel
- OPEC basket - $64.8/barrel
- Urals - $66.2/barrel
- Oman - $64.9/barrel
- Dubai - $64.4/barrel
- Western Canada Select - $41.9/barrel
Today’s inventory report from US Energy Information Administration (EIA) will be released at 14:30 GMT.