Breaking News
0

Oil Faces A Day Of Reckoning

By Phil FlynnCommoditiesMay 07, 2018 08:33AM ET
www.investing.com/analysis/the-energy-report-050718-200313659
Oil Faces A Day Of Reckoning
By Phil Flynn   |  May 07, 2018 08:33AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

A Day of Reckoning

Oil prices face a day of reckoning as the U.S. decides whether it will remain in the Iranian nuclear accord, and the realization is that due to underinvestment in oil it might be difficult to replace Iranian oil if it is taken off the market. What also is clear the market is going to be more sensitive to disruption as the biggest oil glut in mankind’s history is now just a memory. The breakout $70 a barrel is not a fluke, but has been building as global demand exceeded exceptions and the false mantra of lower for longer oil prices turned out to be a fantasy.

It is also unclear whether Saudi Arabia will act to make up for the loss of Iranian oil supply. It is being reported by Bloomberg that Saudi Arabia’s former price doves on oil now want prices near $80 a barrel and former Price hawk Iran want staple prices in the $60 a barrel range. We have heard this before, but it comes at a critical time as the showdown with the U.S., and the high likelihood that there will be new sanctions on Iran, means that the global oil market will be caught short. Saudi Arabia is really the only country with sufficient spare capacity to make up for the loss of Iranian oil and they might not be in a hurry to act because they want $80 a barrel.

If you look at OPEC, compliance is the best it has ever been. It was reported last week that OPEC compliance hit a new record high of 162 percent as the cartel pumped 32.12 million barrels per day this month, the survey found, down 70,000 bpd from March. The April total is the lowest since April 2017, according to Reuters surveys.

In April, the biggest decrease in supply came from Venezuela, where the oil industry is starved of funds because of economic crisis. Output dropped to 1.50 million bpd in April, the survey found, a new long-term low.

Production in Angola, where natural declines at some fields are weighing on output, slipped and the country is pumping over 260,000 bpd less than its OPEC target. Nigerian exports, which have risen this year, slipped in April. Production in Libya, which remains unstable due to unrest, edged lower after a suspected act of sabotage briefly stopped flows from Waha Oil Co.’s fields, industry sources said according to Reuters.

Even though some of the decline was due to unintended problems, the reality is that the market badly misjudged OPEC’s resolve to erase the world of the oil glut. Like I said before, this is not your daddy’s OPEC. Venezuela is collapsing, helping that compliance number. Reuters reports that U.S. oil firm ConocoPhillips (NYSE:COP) has moved to take key Caribbean assets of Venezuela’s state-run PDVSA to enforce a $2 billion arbitration award, actions that could further impair PDVSA’s declining oil production and exports.

Shale oil production is on the rise, but shale producers do not have the ability to quickly erase production. Logistics and bottlenecks make that impossible. Even as we saw the U.S. rig count surge. Baker Hughes reported the number of active U.S. rigs drilling for oil rose by 9 to 834 this week. The oil-rig count had logged gains in each of the last four weeks. The total active U.S. rig count, which includes oil and natural-gas rigs, climbed by 11 to 1,032, according to MarketWatch.

U.S. gasoline and product prices will also rise. Make sure your hedges are in place. Natural gas is under pressure as U.S. production surges.

Oil Faces A Day Of Reckoning
 
Oil Faces A Day Of Reckoning

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email