Friday, 24 May, 2019

Global crude oil prices extend losses after JP Morgan cuts forecast

Venezuela battles enormous oil backlog Saudis Start to Ramp Up Oil Output, Ahead of OPEC Meeting
Ginger Lawrence | 10 June, 2018, 12:25

According to J.P.Morgan, The Saudis and Russian Federation are wary of prices rising high enough to dent demand as Venezuela's output continues to decline amid an economic crisis and as USA sanctions come into force against Iran, OPEC's third-biggest producer.

Brent crude futures settled down 86 cents, or 1.1 percent, at $76.46 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1 rose $1.22, or 1.88 percent to $65.95 a barrel. For the week, Brent fell 0.5 percent, while USA crude slipped 0.3 percent. Still, at the back of investor's minds is the thought that prices may lack support if the supply tap is turned back on to full by the end of the year.

Crude-oil futures finished slightly lower on Friday and registered a marginal decline for the week as worries over potential supply shortages in South America and the Middle East knocked prices around throughout the five-session period.

The agreement, which was first reached in December 2016, is expected to last till December 2018.

The futures contracts dipped after the forecast was issued, and then pared losses.

China's May crude oil imports eased away from a record high hit the previous month, customs data showed on Friday, with state-run refineries entering planned maintenance.

In April, PDVSA shipped 1.49 million barrels per day (bpd) of crude and fuels to its customers, 665,000 bpd below the 2.15 million contracted, according to the documents. That compared with 9.6 million bpd in April.

Further weighing on prices has been rising US output, which hit another record last week at 10.8 million bpd.

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He said, "It's insane and astonishing to see instruction coming from Washington to Saudi to act and replace a shortfall of Iran's export due to their Illegal sanction on Iran and Venezuela", and he added that "No one in OPEC will act against two of its founder members; the USA tried it last time against Iran, but oil prices got to $140 a barrel".

At the time of writing, the spread between Brent and WTI reflects a premium priced in for Brent, which seems to have more supply challenges than WTI, and a discount for WTI because of the plentiful supplies stemming from US Shale.

Indeed, investment bank Jefferies reiterated that the market is tight and spare capacity could dwindle to 2 percent of demand in the second half of 2018, its lowest level since at least 1984 - but the warning went unnoticed, at least for the time being.

Markets have been tightened by supply trouble in Venezuela, where state-owned oil company PDVSA is struggling to clear a backlog of about 24 million barrels of crude waiting to be shipped to customers.

Among them are the political and economic instability in Venezuela and speculations that Saudi Arabia and Russian Federation are ready to exit the supply cuts agreed on by members and non-members of Organisation of Petroleum Exporting Countries (OPEC).

Iran has called on Opec to discuss what it called "illegal" sanctions at the next meeting on June 22, which is due to debate production policies.

Heading into next week, it's likely traders will continue to be influenced by what OPEC will or won't do at its Vienna meeting later this month; and on Friday Iran got a head start in spreading rumours with Hossein Kazempour Ardebili, that country's OPEC governor, stating that OPEC would not heed the appeal of the Saudi Arabia to pump more oil in order to cover a drop in Iranian exports.

"We're going to be subject to incredible headline risk", said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund.