Five fac­tors to watch as Brent oil hits $80 a bar­rel

Tehran Times - - ENERGY -

Brent crude sur­passed the $80 a bar­rel mark this week, close to this year’s highs, with traders weigh­ing im­pend­ing sanc­tions on Iran’s en­ergy sec­tor, lower forecasts for shale pro­duc­tion and a big hur­ri­cane ap­proach­ing the U.S. east coast.

“Those of a bullish dis­po­si­tion cur­rently have no short­age of am­mu­ni­tion. Yet they have been given a fur­ther help­ing hand by Mother Na­ture,” said Stephen Bren­nock at Lon­don-based bro­ker PVM.

Brent, the in­ter­na­tional bench­mark, rose to a high of $80.13 a bar­rel on Wed­nes­day — the high­est since the in­tra­day peak of $80.50 a bar­rel in May — be­fore re­treat­ing to $79.15 a bar­rel on Thurs­day.

U.S. marker West Texas In­ter­me­di­ate hit a high of $71.26 a bar­rel on Wed­nes­day, be­fore edg­ing lower to $69.42 a bar­rel on Thurs­day.

1. Iran’s oil ex­ports in fo­cus

Crude sup­plies from Iran are ex­pected to take a hit as U.S. sanc­tions come into ef­fect in Novem­ber, tight­en­ing the global oil mar­ket in spite of calls from U.S. pres­i­dent Don­ald Trump to in­ter­na­tional pro­duc­ers to in­crease out­put.

“Iran is in­creas­ingly be­com­ing the pre­oc­cu­pa­tion of the crude mar­ket,” said an­a­lysts at JBC En­ergy. An ex­pected squeeze on crude flows was al­ready tak­ing shape, they said, with Iran stor­ing crude on­shore as well as on ves­sels.

Alexan­der No­vak, Rus­sia’s en­ergy min­is­ter, on Wed­nes­day warned that the sanc­tions would cre­ate “huge un­cer­tainty” for the mar­ket, with it still un­clear how many big con­sumers would curb their pur­chases to meet U.S. de­mands.

South Korea has al­ready dropped im­ports to zero. Buy­ers in In­dia and China, mean­while, have be­gun to re­duce their pur­chases even as both coun­tries have said they will not sub­mit to or­ders by the Trump ad­min­is­tra­tion.

Although Saudi Ara­bia and its part­ner out­side of the car­tel, Rus­sia, have said they will lead in­creases in pro­duc­tion to off­set any losses from Iran, whose do­mes­tic pro­duc­tion has been fall­ing, the ramp-up has been slower than an­tic­i­pated.

“The price range for Brent of $70-$80 a bar­rel in place since April could be tested,” the In­ter­na­tional En­ergy Agency said on Thurs­day. “Things are tight­en­ing up.”

Trump has been keen to keep crude prices in check ahead of the midterm elec­tions, fear­ful of any im­pact on do­mes­tic fuel prices. The U.S. has also of­fered 11m bar­rels of oil held in strate­gic re­serves for sale on to the mar­ket.

2. U.S. shale pro­duc­tion growth to slow

Crude oil pro­duc­tion in the U.S. is ex­pected to grow at a slower than an­tic­i­pated rate in 2019, which comes at a time that ques­tions are mount­ing about avail­able global sup­plies.

U.S. crude out­put growth is fore­cast to mod­er­ate to 840,000 bar­rels a day, the U.S. en­ergy de­part­ment said, down from a pre­vi­ous es­ti­mate of more than 1m b/d. drilling in the Per­mian basin is slow­ing amid pipe­line ca­pac­ity con­straints.

Bullish sen­ti­ment was also fu­elled by data from the Amer­i­can Petroleum In­sti­tute this week that showed an 8.6m bar­rel draw­down in U.S. crude stock­piles ver­sus forecasts for an 805,000 bar­rel de­cline.

The U.S. en­ergy de­part­ment on Wed­nes­day also re­ported a much larger than ex­pected draw in crude stock­piles. In­ven­to­ries fell by 5.3m bar­rels com­pared to a fore­cast for a fall of 805,000 b/d.

3. Hur­ri­cane Florence nears U.S. coast

Fur­ther pro­pel­ling prices, is a big hur­ri­cane that is ap­proach­ing the coast of North Carolina or South Carolina, with more than 1.5m peo­ple or­dered to evac­u­ate their homes.

Amid storm surge warn­ings, east coast petrol prices are ex­pected to rise tem­po­rar­ily as mo­torists fill up their tanks in an­tic­i­pa­tion of the hur­ri­cane. But an­a­lysts say de­mand, in fact, could drop if fewer peo­ple are driv­ing their cars.

Anx­i­eties that Florence could im­pact the Colo­nial Pipe­line, which runs through the Caroli­nas and sends crude prod­ucts to the north-east, have been dis­missed, with an­a­lysts say­ing that it is deep un­der­ground and so will prob­a­bly re­main un­af­fected.

But they are still keep­ing an eye on the im­pact of any flood­ing or power out­ages at pump­ing sta­tions for the pipe­line.

Other smaller weather events, in­clud­ing Trop­i­cal Storm Isaac, are also be­ing mon­i­tored as they may have a big­ger im­pact on the oil and gas sec­tor if they move to­wards the Gulf of Mex­ico — a hub for en­ergy pro­duc­tion and re­fin­ing op­er­a­tions.

4. Hedge funds bet on ris­ing prices

Af­ter months of liq­ui­dat­ing long po­si­tions, hedge funds are now mak­ing fur­ther bets on ris­ing oil prices amid con­cerns the sanc­tions against Iran could leave the mar­ket short of crude.

Net-long po­si­tions on Brent crude — the dif­fer­ence be­tween bets on higher and lower prices — rose more than 7 per­cent in the week end­ing Septem­ber 4 to 416,742 fu­tures and op­tions con­tracts, ac­cord­ing to data from ICE Fu­tures Europe.

Net-long po­si­tions on West Texas In­ter­me­di­ate, the U.S. marker, in­creased by 16,634 over the same pe­riod to 386,487 con­tracts, ac­cord­ing to the U.S. Com­mod­ity Fu­tures Trad­ing Com­mis­sion.

5. De­mand growth un­cer­tainty ahead

One rea­son why OPEC pro­duc­ers are not rapidly boost­ing out­put re­flects un­cer­tainty about the out­look for oil con­sump­tion given a chal­leng­ing back­drop for the global econ­omy.

Both the U.S. en­ergy de­part­ment and OPEC’s re­search arm have trimmed their forecasts for de­mand growth next year. The En­ergy In­for­ma­tion Ad­min­is­tra­tion re­duced its 2019 growth fore­cast by 100,000 bar­rels a day to 1.47m b/d, while OPEC cut its es­ti­mates for a sec­ond con­sec­u­tive month by 20,000 b/d to 1.4m b/d.

“Ris­ing chal­lenges in some emerg­ing and de­vel­op­ing economies are skew­ing the cur­rent global eco­nomic growth risk fore­cast to the down­side,” OPEC said in its monthly oil mar­ket re­port on Wed­nes­day.

It added: “Ris­ing trade ten­sions, and the con­se­quences of fur­ther po­ten­tial mon­e­tary tight­en­ing?.?.?.? in com­bi­na­tion with ris­ing global debt lev­els, are ad­di­tional con­cerns.”

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