Oil in Global Economy Series: Key oil market updates

Monday, December 17, 2018 11:07 AM UTC

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 counts: The production marginally declined last week to 10.6 million barrels per day. Price is just shy of record production of 11.7 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 declined to 873, the lowest since mid-October. The numbers of operating rigs have declined for a second consecutive week.
Venezuela crisis: Crisis continues in Venezuela. According to the latest report, inflation has reached an all-time peak of one million percent. And oil production has continued to dwindle. However, according to Reuters’; survey, the oil production is set to rise by 0.06 million barrels per day for the first time since the crisis. However, a separate Bloomberg survey report suggests that production is set to decline again in November. OPEC report suggests Venezuela’s production declined to a fresh low of 1.137 million barrels per day.
Iran: Uncertainty surrounds Iran’s oil exports as the U.S. sanctions have kicked in from 6th November. The United States has promised harshest of punishments to those who violate the sanctions including payment system SWIFT. However, the U.S. has allowed a 180-day waiver for 8 counties, including China, India, and Korea. OPEC surveys suggest that Iran’s oil production is coming down. There are reports that Japan would soon stop buying its crude oil from Iran. The latest report from Reuters suggests that Iran’s production is declining fast. In November, it was 2.85 million barrels per day. Bloomberg survey also showed production below 3 million barrels per day for the first time since the Iran nuclear agreement. Currently, the European Union is working on a mechanism that would help Iran to bypass U.S. sanctions. According to OPEC, Iran’s production was 2.95 million barrels per day.
OPEC & Russia & Saudi Arabia: Saudi Arabia led OPEC and Russia led non-OPEC countries reached an agreement on Friday to reduce global oil supplies by 1.2 million barrels per day. OPEC would bear 0.8 million cuts, while Russian led non-OPEC countries would bear the rest. Three countries have received exemptions from the cut; Libya, Iran, and Venezuela. All countries are likely to reduce 3 percent production.
Saudi Arabia and Trump: President Trump has been pressing Saudi Arabia to increase production to keep oil price low as it helps not only his economic agenda but makes it difficult for Iran as oil exports bring a lesser amount of revenues. So far, Saudi Arabia has increased production by 1 million barrels per day. However, with declining price of oil, the kingdom has agreed to a production cut, which makes next year’s OPEC reports very interesting to see.
Syria/Russia/Iran/U.S.: The United States has sanctioned several Iranian and Russian individuals as well as some entities over supplying oil to the Syrian government, which according to the United States finally reach the hands of terrorists. Canada recently arrested Huawei’s chief financial officer at the request of the United States for violating U.S. sanctions against Iran.
Hedge funds: Despite OPEC deal. Oil price is struggling as hedge funds are steadily reducing positions. According to Commitment of Traders’ report (CoT), Speculators reduced long positions for the 11th Consecutive week and for the 21st time in 25 weeks, and by 20,640 contracts, which brought the net positions to +309.5K contracts. Speculative long positions reached a record high of 739.1K contracts in February this year and have been declining since.