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(Points of view and opinions expressed in this article are those of attributed sources and do not necessarily reflect the position of Rigzone or the author.)
Several factors, from vaccine development to improving demand in Asia to OPEC’s use of Zoom, are helping to bolster the oil market outlook. Read on for more detailed explanations on these and other drivers from some of Rigzone’s regular market watchers.
Rigzone: What were some of the market expectations that actually occurred over the past week, and what didn’t?
Andrew Goldstein, President of Atlas Commodities LLC: Over the past two weeks, the WTI crude oil futures curve has rolled back again, which means an optimistic attitude for traders, as the closest forward contracts are priced higher than the contracts further away from the curve. . This happens when the trade struggles to keep oil in storage, releasing barrels into the market, signifying the current needs for those supplies. Global demand has exceeded expectations, with China and India leading the way, helping to reduce the global oil glut that began in March 2020.
Tom McNulty, Houston-based director and energy practice leader of Valuescope, Inc .: WTI and Brent traded higher this week due to two factors. First, the OPEC + deal, as it stands, soon implies some relaxation of production cuts. Second, vaccine news implies that the demand for crude oil will increase in 2021.
Barani Krishnan, Senior Commodity Analyst, Investing.com: Both OPEC and the US Energy Information Administration (EIA) surprised markets, although this varied in how they defied expectations.
Phil Kangas, Partner in Charge USA, Energy, Natural Resources and Mining Advisory, Grant Thornton LLP: Not surprisingly, better market conditions reflected the dust settling in the 2020 US election cycle and growing optimism for COVID-19 vaccines is now expected to be available for initial distribution as soon. like this calendar year. These factors have been widely attributed to the rising values of WTI and Brent crude raw materials. By the end of November, oil prices had regained lost ground at a faster rate than expected. The EIA had reported in its short-term energy outlook early last month that “high global inventory levels and excess crude oil production capacity (will limit) upward pressure on oil prices, and that Brent prices will remain near $ 40 a barrel until the end of 2020. “
However, at the end of last week, oil prices reached the highest level since the beginning of March. Brent crude ended the week at $ 48.15, while WTI closed the week at $ 42.42. In November alone, crude oil prices (Brent and WTI) rose about a third of their value. However, these commodities still remain well below pre-COVID price levels.
Mark Le Dain, Vice President of Strategy at oil and gas data firm Validere: The weakening of the US dollar has been one of the rare operations that has gone as expected by meteorologists. This has been a big tailwind for commodities that could continue with more stimulus.
Rigzone: What were some of the surprises in the market?
Krishnan: OPEC managed to stick together to achieve a modest increase in production despite the rebound in prices, a situation that might have been unthinkable just a couple of years ago.
When looking at OPEC stocks, it is important to understand how far the cartel has come in its 60 years. The cartel has been around the curve too many times before, that is, it is eager to increase production by a $ 10 increase only to let the market crash $ 20 later. That is why he is being extremely careful this time. The half million barrel adjustment agreed this week appears to be a well calculated hedge, which the group can withdraw at any time.
If anything, the COVID-19 pandemic has allowed the group to be more agile than at any other time in its six-decade history. You can organize a Zoom meeting a couple of days in advance, rather than taking months for the group to meet in Vienna or some other consensus capital.
Another positive for the cartel is Iran’s tacit agreement to go with whatever agreement reached by the group’s leadership, even though Tehran does not have an active role given the Trump administration’s sanctions against the Islamic republic. However, Iran must be carefully watched, depending on how quickly the (projected) Biden administration lifts those sanctions and how much Tehran will add to supply in the short term.
For now, it appears that OPEC is confident of managing short-term excesses, and Saudi Energy Minister Abdulaziz Salman appears unfazed even by Libya’s galloping output.
In other words, OPEC is extremely cautious, but it also seems more confident than ever that it can turn the situation in its favor.
With the weekly EIA data, the number of crude extraction of the 700,000 barrels it took out was very out of step with the American Petroleum Institute (API) industrial group’s 4 million barrel construction forecast. Despite the API forecast, market analysts had expected a decline in crude stocks during Halloween week. But the decline reported by the EIA was less than a third of its consensus.
The surprise did not end there. The EIA also had a gasoline build-up of at least 1.2 million barrels more than analyst consensus and a huge and unexpected 3 million net barrel increase in diesel distillate inventories. Gasoline generation can be quite consistent with the kind of lower fuel demand seen this time of year, with so few people taking road trips in the cold weather and COVID-19 changing the entire dynamics of travel. But the addition of distillates was cause for concern, given the typical demand for diesel from trucks and other delivery services before the end of the year holidays.
In addition, US production rose for the second week in a row, topping 11 million barrels per day (bpd), although it increased only 100,000 bpd for the week.
Despite less-than-stellar inventory numbers for oil bulls, US crude prices rose during the week as investors remain obsessed with the market breaking free of the pandemic in the coming months due to a breakthrough. in vaccines.
McNulty: I thought the absence of significant news about mergers and acquisitions (M&A) was strange because there is a lot of activity behind closed doors in terms of “deal flirting” throughout the energy complex. There are still too many oil services (OFS) and upstream companies competing with each other. True, valuations have made consolidation deals unattractive, but they must happen.
Cloth: Historically, there is a negative correlation between crude oil prices and inventory changes from the EIA DOE (US Department of Energy). The DOE reported a crude extraction of 0.754 million barrels (MMbbl) versus an expected accumulation of 0.234 MMbbl, reducing inventories to 488,721 MMbbl. This comes as industry watchers saw a 0.754 MMbbl drop in US crude inventories for the week ending November 20. The modulation of direct changes in oil prices from weekly inventory withdrawals can have several contributing factors. Among them are the anticipation of increased supply uncertainty based on the decisions of the OPEC + meetings and the recognition by investors that vaccine optimism may have artificially increased prices in the short term.
The Dain: OPEC’s shift to a cadence of monthly meetings for future production increases or decreases came as a positive surprise to the market. This is useful as it will allow the market to look beyond the first quarter setbacks and look for a vaccine as participants will take on a more proactive balancing effort in the intervening months.
Goldstein: Crude oil WTI is 37 percent higher than on Nov. 2, 2020, close to $ 34, primarily due to the potential success of future vaccines for COVID-19. With the number of cases, hospitalizations and deaths increasing daily, I am surprised that the demand for crude oil is at current levels.
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