Crude Firms as OPEC Shifts Concern to a Potential Global Oversupply

by Ship & Bunker News Team
Thursday October 25, 2018

Of all the sentiments driving the crude market, the one causing prices to firm on Thursday was said to be fear and anxiety about the global economy, thanks to the ongoing U.S.-China trade war, rising borrowing costs and bond yields, the rout in emerging market currencies, and even economic concerns in Italy.

West Texas Intermediate settled up 51 cents to $67.33, while Brent rose 77 cents to $76.94 - the latter number almost $10 less than the high it achieved on October 3.

Fiona Cincotta, market analyst at City Index, remarked that "Fear and anxiety about the global economy are currently playing a bigger role in the oil price than the actual fundamentals of supply and demand."

The irony is that the market seems to be overlooking - at least temporarily - concerns from many analysts about rising oil inventories as supply exceeds demand in some key markets, including the U.S. - this after months of the focus of concern being a prospective global tightening due to loss of Iran exports under the U.S. sanctions.

Indeed, traders on Thursday brushed off a report showing rising inventories at Cushing, Oklahoma, to 33 million barrels on Tuesday, up almost 1.8 million barrels from the previous week, according to Genscape.

Also relatively ignored on Thursday was signs that the Organization of Petroleum Exporting Countries (OPEC) may adjust output limits to prevent a return of a global glut: its Joint Ministerial Monitoring Committee stated in a press release Thursday that it "directed the JTC (Joint Technical Committee) to continue to study the 2019 outlook and present options on 2019 production levels to prevent re-emergence of a market imbalance.

"The committee...expressed concerns about rising inventories in recent weeks and also noted looming macro-economic uncertainties which may require changing course."

This falls in line with comments made last month  by Khalid al-Falih, energy minister of Saudi Arabia: he said that while his kingdom and other OPEC members are currently pumping full-out to compensate for the shortcomings expected as a results of the U.S. sanctions against Iran, "We expect an oversupply in 2019, [and] we may have to go back to the reduction."

Even though sentiment trumped fundamentals in Thursday's trading activity, and even though the focus for those fundamentally inclined seems to be about prospective oversupply, there still remains a substantial number of experts who can't shake the fear that Iran will cause short-term market chaos, and the latest rift on this fear is the notion (advanced by RBC Capital Markets) that outages from comparatively minor players such as Nigeria and Libya could, along with the Iran shortfalls, cause triple digit prices.