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 last week remained at a record high of 11.9 million barrels per day, which is a record. 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 rigs rose to 857. U.S. oil production is likely to be one of the most influential factors for oil prices in the years to come. The International Energy Agency (IEA) assessed that the U.S. oil production would near the combined production of Russia and Saudi Arabia by 2025.
- Venezuela crisis: Crisis continues in Venezuela. According to the latest report, inflation has reached an all-time peak of one million percent. OPEC report suggests Venezuela’s oil production gained on a monthly basis for the first time since the crisis began. In December, Venezuela produced 1.148 million barrels of oil per day. In January, according to the OPEC report, the production declined again in January to 1.1 million barrel per day. However, the situation could get far worse as the United States unilaterally recognized Venezuela’s opposition leader Juan Guaido as the legitimate President. More countries from the European Union denounced Maduro as the legitimate leader and recognized opposition leader Juan Guaido as the true President. The risk of the U.S. The risk of military intervention runs very high at the moment.
- 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 steadily. The European Union is working on a mechanism that would help Iran to bypass U.S. sanctions. According to OPEC, Iran’s production was 2.75 million barrels per day in the month of January. Iran oil supplies will be one of the key determinant of prices going ahead. The U.S. recently extended the 180-day waiver for Iraq by another 90 days. Iran’s production is expected to decline further. Recent steps suggest that relations between the EU and Iran are worsening with EU imposing punitive sanctions on Iran. EU is opposed to Iran’s ballistic missile tests. Iran’s supreme leader Khamenei has been warning the government against trusting the EU countries as relation worsens.
- OPEC & Russia & Saudi Arabia: Saudi Arabia led OPEC and Russia led non-OPEC countries reached an agreement last year to reduce global oil supplies by 1.2 million barrels per day beginning 2019. 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. This production cuts would be key in determining prices in future. According to the January OPEC report, compliance with the new agreement has hit almost 80 percent as Saudi Arabia and UAE reduce more than they agreed to.
- OPEC vs. USA: U.S. Congress has passed a bill earlier this month that allows the country’s Department of Justice to sue members of OPEC for manipulating oil price.
Key global oil benchmarks:
WTI - $56.1/barrel
Brent - $66.3/barrel
OPEC basket - $64.9/barrel
Urals - $66.3/barrel
Oman - $65/barrel
Dubai - $64.5/barrel
Western Canada Select - $38.7/barrel