Oil Market Roundup - Monday Week 4

Monday January 21, 2019

An unusual surge of confidence stemming from a variety of elements, including Russia restating its commitment to production cuts and Japan receiving the first shipment of oil from Iran since the U.S. sanction waivers, caused crude prices to edge upwards on Monday.

Brent rose 12 cents to $62.83 per barrel, while West Texas Intermediate was up 19 cents to $53.99 per barrel - and while the gains were nothing remarkable, a noteworthy aspect of Monday's trading was that investors for once shrugged off data confirming that China's economic growth in 2018 fell to a 28-year low.

Also, according to PVM Oil Associates in a note, "The stock market performance is one of the reasons why oil keeps marching higher; there also seems to be a general belief that the agreed cut in OPEC+ production will be sufficient to balance the market," a reference to the Organization of the Petroleum Exporting Countries' much ballyhooed bid to enter into another round of production cutbacks this year.

Presumably, the "general belief" of the trading community extends to Russia, whose energy minister, Alexander Novak, on Monday once again stated his commitment to fulfill its part in the cutbacks - in reaction to Khalid al-Falih, energy minister for Saudi Arabia, last week complaining that the former Soviet Union was cutting its oil production more slowly than expected.

Meanwhile, as if to underscore what is proving to be an overblown geopolitical issue, Japanese refiner Fuji Oil Co reportedly lifted Iranian crude oil in the first cargo to head for Japan since the country received a waiver from U.S. sanctions on Tehran; the VLCC Kisogawa loaded 2 million barrels of Iranian oil on Sunday.

Whether or not the growing confidence over crude in 2019 is justified, DNV GL in its annual study cited the sentiment as a reason why 85 percent of American executives questioned believed there were reasons to expect an increase in drilling in 2019.

By contrast, the figure for 2018 was only 60 percent.

DNV GL went on to note that almost half of U.S. companies were preparing for "significant increases" in spending on projects over the coming months; Frank Ketelaars, Americas regional manager at DNV GL stated that "There are brighter prospects for activity and investment across the value chain this year and beyond."

Additionally, the report said that recent volatility hasn't dented confidence around the world, suggesting that the crude sector is becoming more comfortable with fluctuating or lower energy prices.