Weekly Oil Price ReviewViewOil prices continued their relentless fall this week as the market’s bearish sentiment overwhelmed any inkling of relief. On Monday, North Sea Brent initially traded higher as Libya declared a force majeure due to fighting that halted oil shipments from the ports of Es Sider and Ras Lanuf, in turn effectively removing some 300,000 bpd from the market. This geopolitical event only provided an interim boost as Brent fell $0.79/bbl for the day and WTI fell $1.90/bbl, with U.S. gasoline and diesel prices also closing lower for the day. Despite these notable geopolitical events in Libya and Nigeria (oil industry labour union disputes) that are reducing the amount of seaborne oil by considerable amounts, crude benchmarks did not respond on Tuesday as the January Brent crude contract expired to settle at $59.86/bbl and the January WTI futures contract gained only $0.02/bbl. Over the past few months, the oil market has been increasingly characterised by higher volumes, increased volatility and wider price swings and will continue to do so until the market finds a bottom – Thursday morning saw Brent jump nearly $3/bbl, but later fall to a loss of almost $2/bbl. From Monday to Thursday, Brent fell 1.88/bbl to close at $59.97/bbl while the expiring January WTI contract fell 3.70/bbl to close at $54.11/bbl, with the new February WTI contract settling at $54.36/bbl.
Iranian crude exports to India climb in 2014ViewIranian crude exports to India have jumped by approximately 38% in the eleven months to November as the easing of Iranian sanctions has enabled greater shipments. Last month, India imported 250,600 bpd from Iran, 14% more than the country imported from Iran in the same month last year, but a 19% decline from this past October. India is Iran’s second largest crude customer, after China, and has seen such a large boost in Iranian crude imports this year partly due to the low base case comparison in 2013. Notwithstanding, Indian crude imports did grow roughly 6.8% in November compared to a year ago, reaching 3.86 million bpd this past month, with Iran’s share of Indian crude imports increasing to 7.1% in the first eleven months of the year compared with a 5% share last year.
Russia adamant to maintain crude output in 2015ViewAlexander Novak, the Russian Energy Minister, has reiterated that the country will not reduce its crude production in 2015 as it holds the view that tumbling oil prices will stabilize. Falling oil prices have brought further hardship upon the major oil producing country, in addition to U.S. and EU sanction; Russia’s main deposit interest rate was raised to 17% from 10.5% on Tuesday after the Russian ruble plunged . Despite its weakened economy, Russia is planning to maintain its crude oil output next year at 2014 levels of approximately 10.6 million bpd.
EIA lowers 2015 U.S. oil production growthViewThe U.S. Energy Information Administration has reported that it expects drilling activity in the U.S. in 2015 to be lower than previously forecasted. As a result of falling oil prices, which have dropped over 40% since June, the EIA now expects U.S. crude oil production to average 9.3 million bpd in 2015, a reduction of 200,000 bpd, with the majority of the fall in growth coming in the second half of 2015. However, the organisation expects that prices should remain high enough for drilling activity growth to continue in the Permian Basin, Eagle Ford Shale, Niobrara and Bakken shale formations.
Export terminal closures in Libya and NigeriaViewHalts in exports from two major oil producing countries has provided support to oil prices by removing hundreds of thousands of barrels of crude from seaborne trade. The Libyan NOC has declared a force majeure, which excuses suppliers from meeting delivery obligations due to events beyond their control, at the ports of Es Sider and Ras Lanuf, Libya’s largest and third largest ports with a combined capacity of 560,000 bpd. Output at some Libyan oil fields has also been suspended due to fighting in the divided country. Further, Nigerian oil workers’ unions strikes threaten to halt all work at oil platforms and export terminals, among other facilities. A Nigerian oil industry official professed that a full shutdown was possible if the strike continues for another few days.
OPEC lowers 2015 demand forecast for its crudeViewOPEC has lowered its forecast of demand for its crude in 2015 by 300,000 bpd, compared to an estimate made a month ago. This leaves forecasted demand for OPEC crude next year at 28.92 million bpd, their lowest annual demand forecast since 2003. However, OPEC member countries are defiant to maintain production levels as was agreed at the November 27th meeting; Saudi Arabia and Kuwait’s crude production levels fell only slightly in November, reportedly due to maintenance. If OPEC output remains at November levels, the oil organisation forecasts the global oversupply of crude to reach in excess of 1.7 million bpd in the first quarter of 2015.
Algeria to boost refining capacityViewAlgerian state-owned Sonatrach will award a design contract for three new refineries as part of a long-term objective to raise the country’s refining capacity to approximately 650,000 bpd by 2020. Two of the three new refineries will be in the western city of Tiaret, with the remaining plant planned to be built in the eastern city of Biskra. Sonatrach currently operates five refineries, the largest of which is in Skikda, with a capacity of 335,000 bpd, is a major exporter of naphtha in the Mediterranean Basin.
Chinese crude imports jump in NovemberViewChina imported 6.21 million bpd of crude oil in November, a notable increase of 500,000 bpd from October and 7.9% from last year. According to a Chinese consultancy, the country’s November crude throughput was not anticipated to vary from October’s level of 10.29 million bpd and refinery turnarounds last month were moderate, estimated at only 200,000 bpd capacity. This jump in crude imports, however, is akin with the first eleven months of 2014 during which crude oil imports to China have risen 9% year-on-year to reach 6.1 million bpd.
Saudi Arabia cuts crude prices to Asian and U.S. buyersViewSaudi Arabia has cut crude prices for Asia and the U.S. for January loading in a presumed effort to defend market share. The price discount to Asian buyers was the largest since at least 2002, Saudi term price differentials dropped by $1.50/bbl to $1.90/bbl compared to last month which left the light Saudi grade cheaper than the competing light sour Murban crude from Abu Dhabi. Saudi Arabia may have little choice but to continue cutting prices in order to keep hold of their stake in the competitive Asian market as market conditions remain difficult; in the first half of 2015, the International Energy Agency expects a global oversupply of crude oil of more than 1.5 million barrels.
Weekly Oil Price ReviewViewAfter near free-falling activity last week, oil prices continued to falter as the market digested OPEC’s decision last Thursday to leave global crude oil markets oversupplied. Both crude contracts rebounded on Monday after losing $10/bbl in the past few trading sessions, January Brent futures gained $2.39/bbl while January WTI futures gained $2.85/bbl. The New York market was closed on the day of the OPEC meeting for Thanksgiving, so the outlook for WTI remains cautious as analysts are wary that further heavy losses not felt last Thursday could happen as the week progresses. On Tuesday the market remained volatile as both crudes traded between wide highs and lows, Brent and WTI largely offset their gains on Monday as a result. However, on Wednesday both volumes and price swings were subdued as the market began to come to grips with last week’s OPEC meeting, the EIA also released a large 3.8 million barrel draw in inventory but the market mostly ignored the data choosing instead to focus on international developments. Oil prices fell on Thursday as Saudi Arabia announced steep discounts for selling its crude to Asian and US buyers in a suggested effort to defend market share, while the Libyan NOC announced that the 300,000 bpd El Sharara oil field will soon restart once a pipeline blockage is cleared. But, Thursday’s losses were stemmed by a weaker dollar against the euro, leaving North Sea Brent to fall $0.28/bbl and WTI to drop $0.57/bbl. From Monday to Thursday, Brent opened at $70.15/bbl to close beneath the $70 mark at $69.64/bbl and WTI opened at $66.15/bbl to settle in similar territory at $66.81/bbl.