Oil Market Roundup - Wednesday Week 4

Wednesday January 23, 2019

A variety of reasons - almost all of them familiar - were offered by the analytical community for Wednesday's crude market performance, which saw West Texas Intermediate falling a modest 39 cents to $52.62 per barrel, and Brent declining 35 cents to $61.15 per barrel.

The losses were accompanied by news that will surely affect trading negatively in coming days, namely, that Iran - which has vowed to keep pumping all out despite the sanctions levied against it by the U.S. - has discovered oil in the Abadan region for the first time.

Although trading began strongly on Wednesday with the hope that China and Japan would undertake fiscal stimulus to ward off the perceived global economic slowdown, futures were headed toward a second straight day of losses by midday, and experts scrambled to explain them.

Jim Ritterbusch, president of Ritterbusch and Associates, said, "We are paying particular attention to weakening NYMEX crack spreads where an increasingly heavy gasoline market is providing a limiter on near term WTI gains" - referring to a spread between U.S. gasoline futures and WTI crude on the New York Mercantile Exchange falling to $6.11per barrel, its lowest since 2013.

Abhishek Kumar, senior energy analyst at Interfax Energy, remarked, "Rising oil output from the United States, together with the effects of the U.S.-China trade war and growing prospects of the United States hitting its debt ceiling" were impacting crude prices.

Yet another reason for the losses was offered by Peter Cardillo, chief market economist at Spartan Capital Securities: he pointed out that a possible system to facilitate non-dollar trade with Iran and bypass the U.S. sanctions (disclosed by France's foreign minister) had "knocked the wind out of oil prices."

The prospect of Iran causing further market unrest has long been simmering, and exacerbating the possible turn of events described by Cardillo for nervous traders was Iranian president Hassan Rouhani, who said on Wednesday, "With regard to oil issues, luckily we are pursuing various paths and roads for selling oil and we bypass American sanctions with pride."

Iran is shaping up to be the next major reason for concern within the trading community: Bijan Zanganeh, energy minister for the Islamic republic, was quoted as saying by the Mehr news agency on Wednesday that his country had discovered oil in the southwestern Abadan region, found at a depth of 3,570 meters in an exploratory well, and said to be "very light and sweet."

However, he gave no estimate of how much oil the well might contain.

Not far behind Iran in terms of providing unrest is Russia: Vagit Alekperov, president of that country's second biggest oil producer, Lukoil, said on Wednesday that the current oil price of around $60 per barrel was satisfactory for Russia's budget and for its oil companies, and that the global oil output cut enacted by the Organization of the Petroleum Exporting Countries (OPEC) - which is widely regarded as keeping the market stable - should not be prolonged.

In spite of Iran, another geopolitical development that may contribute to bullish sentiment in the near future is the people of Venezuela on Wednesday demanding an end to the socialist government of president Nicolas Maduro, as opposition leader Juan Guaido declared himself interim president.