HomeResearch and NewsOil Market Report - October 2017

Oil Market Report - October 2017


Crude oil market climbed higher in October following some consolidation in the beginning of the month. Brent even closed the month above $60 per barrel, WTI got to its technical level $55 per barrel (upper channel trend). Some correction after the rally is likely now. However WTI has a potential to go close to $60 per barrel before OPEC November 30 meeting.

OPEC and non-OPEC countries are expected to make a positive decision on extension of the cut deal until the end of 2018 at their meeting on November 30. Saudi Arabia still looks very interested in OECD crude oil stocks rebalancing in 2018. Their national oil company’s IPO was under question after several rumors about Chinese offer to buy strategic stake in Saudi Aramco, but confirmations from Saudi crown prince and minister of energy, that IPO is still on track, persuaded the market.

Iraq military operation against Iraqi Kurdistan served as an additional factor of positive sentiment for the market. Since then the operation exports of crude oil from Kurdistan have been halved. There are other geopolitical risks as well: possible Venezuela’s default and political arrests in Saudi Arabia. Tightening in supply/demand balance makes the market more vulnerable to these geopolitical risks.

However, it is not only tightness that urged the price of Brent to break through above $60 per barrel. Speculative long positions of hedge funds are at the record levels. It is well said, that the long trade is overcrowded now, and when some speculative target is achieved massive closure of long positions will likely be the outcome.

OPEC November 30 meeting had better answer the expectations for the deal extension until the end of 2018 or else the price will definitely collapse. According to last comments there is no decision on extension among OPEC and non-OPEC countries. Crude oil prices surged on agreement among export countries that some extension is crucial for market rebalancing next year. It is only that the market assumed the extension of nine more months and probability of less extension for the deal to end in Summer is high actually, especially with price at $60 per barrel. It is also possible that no decision will be reached at the meeting in November and special meeting will be arranged for March next year to see changed supply/demand balance.    

Imports of crude oil to China stood at 31.03 mln tons in October, or 7.3 mln bbl / d, up from the same month a year earlier but well below about 9 mln bbl / d in September, according the data from the General Administration of Customs. However, China’s Ministry of Commerce set 2018 crude import quotas for non-state companies at 142.42 mln tons, which is 63% above 2017 level. Hence it is likely a temporarily negative factor. China’s crude oil purchases for its strategic petroleum reserves keep on going still. November data will be very interesting.

EIA in their weekly petroleum report estimated U.S. oil production at 9.62 mln bbl / d in the week ended November 3, the highest U.S. production number since 1983. Just a day before EIA had said U.S. oil production was at 9.2 mln bbl / d in September in their Short-Term Energy Outlook.

Surprisingly, last OPEC monthly oil report was strongly positive:

1) Global oil demand is expected to rise 1.51 mln bbl / d next year (previous forecast was 1.38 mln bbl / d).

2) Forecast for non-OPEC oil supply growth in 2018 was cut by 70 thsd bbl / d to 870 thsd bbl / d. 

3) As a result, estimate for demand for its crude in 2018 was raised by 360 thsd bbl / d.

4) The only possible negative moment in the report, that Saudi Arabia told OPEC it had pumped above 10 mln bbl / d in October, 83 thsd bbl / d higher than in September.

IEA announced closer to high crude oil price reality forecasts the following OPEC report day:

1) Oil "market balance in 2018 does not look as tight as some would like and there is not in fact a ‘new normal’ for crude oil prices.

2) Oil demand growth forecasts was cut by 100 thsd bbl / d for both 2017 and 2018 to +1.5 mln bbl / d and + 1.3 mln bbl / d respectively.

3) Warmer weather, rising non-OPEC output threaten oil market balance, a build in first half of 2018 is likely. Balances are likely to show oversupplied crude oil markets In Q4 2017, Q1 and Q2 2018. IEA sees return to oil oversupply by mid-2018 even with OPEC deal extension.

4) Non-OPEC supplies increased by 205 thsd bbl / d m-o-m in October to 58.05 mln bbl / d, 225 thsd bbl / d higher comparing on the year over year basis.

5) Non-OPEC oil supply is expected to rise by 700 thsd bbl / d in 2017 to 58.1 mln bbl / d and 1.4 mln bbl / d next year to 59.5 mln bbl / d, led by US output.

6) In next 10 year more than 80% of oil output growth is expected to come from U.S.

EIA in its Short-Term Outlook expected the oil market undersupplied by 0.17 mln bbl /d in 2017 (-0.32 mln bbl / d previously), oversupplied by 0.29 mln bbl / d in 2018 (0.18 mln bbl / d previously).

Download PDF

oil, investment, equity

Read more

Oil Market Report - March 2020

Crude oil prices ended February 2020 sharply lower with both ICE Brent and NYMEXWTI showing monthly declines of more than 12% to reach their lowest monthlyvalues in almost 2.5 years as the rapid spread of Covid-19 in China and several othercountries raised investors’ concerns about the impacts on the global economy and oildemand, and triggered a sharp sell-off in markets amid uncertainties on the extent ofdemand destruction and worries that this health crisis might evolve into a pandemic.

oil, investment, equity

Arbat Capital: Banking Sector Report - February 2020

US banks tumbled again in February after very weak performance in January amid spreading COVID-19 around the world. The broad market was underperformed substantially for the second consecutive month after 4 months in a row of leading dynamics. Thus, BKX index decreased by 12.5% MoM in February vs -8.4% MoM of SPX index. Absolute performance on MoM basis was -2 std from the mean and it is in the bottom 4% of absolute MoM performance of BKX index.

investment, banks;

Commodity market Report - February 2020

Trade war is officially over but Chinese risks resurfaced from the other side - extreme quarantine measures after coronavirus outbreak in Jan-Feb resulted in significant breakdown in the industrial production chains and construction activity. However monetary and fiscal stimuli quickly reversed negative sentiment and overall risk conditions returned to the high Greed mode with only commodities market kept in risk-off mode. Energy complex was very volatile as its initial sharp drop was lately compensated by OPEC verbal interventions and renewed risk in Libya and Venezuela. Industrial metals fell sharply, but Precious shined brightly with unbelievable bubble in Palladium. Agri commodities were mostly range bound with Cocoa being top performer

Macroeconomic drivers turn to negative as positive developments after the Trade Deal signature and record financial markets levels gave the way to fears of world economic slowdown after the virus outbreak. On the other hand there were not many voices for recession as stimulative monetary policy should provide the cushion. However we think that markets overstated willingness of the Fed to keep on printing and the main risk once again turned to the hawkish surprise when it exits REPO stimulus gambit and the ECB to end QE.