Crude catatonic with eye on Iran and Greece talks
Crude markets moved swiftly past the Opec meeting of June 5, only to drift directionless, until two month-end deadlines came into focus - for Greece's bail-out package and for Iran's nuclear deal - giving prices a new tune to dance to.
But the music was hardly playing. US-led negotiations with Iran in Vienna for a comprehensive nuclear deal dragged past their June 30 target date.
In Brussels, talks over Greece’s bail-out also ended badly, with the country’s European partners refusing to extend it a credit lifeline and setting the stage for Athens to default on its 1.6-billion euro payment to the International Monetary Fund. and its impact on oil supplies, even if estimates of the incremental volumes and timing vary, the impact of the Greek tragedy on oil markets is less clear.
If developments continue to weaken the euro, that would strengthen the dollar, pressuring oil prices down.
The two dramas aside, Brent and Nymex crude futures were locked in tight bands of US$62-$65 per barrel and $58-$61 per barrel through June.
But stability in this case did not mean market equilibrium. Far from it. Even as expectations for world oil demand growth grew optimistic by the day, the market got fresh reminders of the surfeit of supply, from both Opec and non-Opec producers.
US crude production averaged 9.6 million barrels per day the week ended June 19, nearly 14 per cent higher than the 8.45 million recorded a year ago, data from the country’s Energy Information Administration showed.
The growth, coming despite a steady decline in oil rigs, is being supported by strong internal rates of return in several shale plays.
Opec, meanwhile, cranked up its output to 31.11 million barrels per day in May from 30.93 million in April, the highest monthly volume since October 2012, a Platts survey showed.
Saudi Arabia led the upward charge with a 150,000-barrels-per-day increase to 10.25 million barrels per day, and looks set to keep its output high in the near term, with Oil Minister Ali Naimi saying the kingdom’s market share policy was working, as he arrived for the Opec meeting in Vienna.
Asia has become the battleground for market share as the US backs out more imports. Not only did the country go for five weeks in a row without importing a drop of Nigerian crude, imports of medium gravity crude oil into the US Gulf Coast, home to over 45 per cent of the country’s refining capacity, have also fallen in the past year, because of higher output from the Eagle Ford, Bakken and Permian regions.
US medium-grade crude imports are almost all from the Middle Eastern countries. Gulf Coast imports of Saudi crude dropped 52 per cent from the first quarter of last year to the first quarter of this year, while those of Kuwaiti crude slipped 46 per cent, according to the EIA.
That would probably not worry Saudi Arabia as much as the fact that Russia elbowed it out to
While one can draw a direct line between an end to the crippling Western sanctions against Iranbecome China’s largest crude supplier in May. Angola came in second, pushing the kingdom to third position.
Meanwhile, the growing drumbeat over improving global oil demand seemed predicated on the sustenance of encouraging data in the first few months of 2015.
Platts’ own analysis of data showed China, Japan, India and South Korea – Asia’s top four oil consumers that collectively account for just over 19 million barrels per day –registered a smart pickup in demand in the first four months of this year.
The four consumed a little over 821,000 barrels per day more of LPG, naphtha, gasoil, gasoline, jet/kero and fuel oil over January-April compared with the corresponding period of 2014, a growth of 4.5 per cent, contrasting with the 2.2-per-cent on-year rise registered in 2014.
On the other side of the globe, US gasoline demand surged to 9.66 million barrels per day in the week ended June 19, with the year-to-date average around 272,000 or 3 per cent higher from the corresponding period of 2014.
The average of demand growth projections by the International Energy Agency, the EIA and Opec following their June reports rose to 1.29 million barrels per day from 1.05 million seen in January.
Tentative demand growth will need to trek a long way before it catches up with oversupply, which Igor Sechin, CEO of Russia’s state-owned Rosneft, pegged at 3 million barrels per day. "There is no balance and no clarity about the future of the market," Sechin told the St Petersburg International Economic Forum on June 19.
Money managers appeared to agree. They axed their net long positions in ICE Brent crude futures for the sixth straight week to June 16, hitting the lowest point since March 24.
Vandana Hari is the Asia editorial director at Platts, a global energy, petrochemicals, metals and agriculture information provider and a division of McGraw Hill Financial. She can be reached at [email protected]
