JP Morgan joins the ranks of experts sending inconsistent messages to traders. File Image / Pixabay
The question of whether the crude market has entered a dangerous `red zone' or is moving along just fine was answered forcefully by traders, who, spooked by ongoing evidence of falling exports from Iran and alarmed by a huge drop in daily oil production in the U.S. due to approaching Hurricane Michael, caused crude prices to rise by nearly 1 percent on Tuesday.
West Texas Intermediate settled up 67 cents, or nearly 1 percent, at $74.96 per barrel, while Brent ended the session up $1.09, or 1.3 percent, at $85 per barrel.
Voicing what virtually every media-worthy analyst has already said for the past few weeks, Carsten Menke, commodities research analyst for Julius Baer, remarked, "The oil market mood is exceptionally bullish, with fears growing that the U.S. demands for an Iran oil embargo could cause a significant supply shortfall."
Fatih Birol, executive director, International Energy Agency
We really need more oil
It was previously reported that Iran exported only 1.1 million barrels per day (bpd) of crude in the first week of October, according to Refinitiv Eikon data, and an industry source who also tracks exports said October shipments were so far below 1 million bpd - a far cry from at least 2.5 million bpd in April prior to U.S. president Donald Trump deciding to scrap the 2015 nuclear deal with the Islamic republic.
JP Morgan kindled the already smoldering fears of traders on Tuesday by stating in a note, "Iranian barrels are declining fast, and Saudi Arabia's promise to balance will face a reality check in a month's time."
The perception of global supply and reserves being depleted was rendered even more acute by the threat of Hurricane Michael, which caused 13 platforms in the Gulf of Mexico to be evacuated and about 324,200 barrels of oil and 284 million cubic feet of natural gas to be halted by midday on Monday (as of press time it was unclear how much more production was halted).
As far as the International Energy Agency is concerned, the oil markets "are entering the red zone," according to Fatih Birol, its executive director, adding, "Expensive energy is back at a bad time, when the global economy is losing momentum: we really need more oil."
Presumably with the backing of emerging but fragile economies that can't afford sustained high oil prices, Birol on Tuesday made a direct appeal to the Organization of Petroleum Exporting Countries (OPEC) to boost output.
He said, "If there are no major moves from the key producers, the fourth quarter of this year is very, very challenging; demand is still very strong and we've been losing oil from Venezuela in big amounts, and also Iran is going down."
Birol went on to say that Saudi Arabia is able to boost output to 11 million bpd, and that he's confident the kingdom will act accordingly: "We should try to comfort the markets all together; it may be bad news for the consumers, importers today, but I believe it may well be bad news for the producers tomorrow."
The comments put Birol firmly into one of three camps, the one in which he and fellow travelers such as Trump insist that oil prices are too high and it's well within OPEC's grasp to reverse the situation.
The second camp is the analytical community that believes other nations can't make up for the loss of Iranian exports (a position that Iran, unsurprisingly, supports); the third camp, which numbers as its supporters the Saudis, Russia, the U.S., and many other producers, was most recently represented by Patrick Pouyanne, chief executive of France's Total, who told an Oil & Money conference, "The market is well supplied; inventories are continuing to grow ... prices are high not because of demand but because of political issues."
Unfortunately, many respected banks and consultancies tend to issue statements that play up to each of these conflicting camps, thus causing further market confusion: this was recently evidenced by Goldman Sachs, which has repeatedly changed its mind about whether other nations can compensate for the Iranian shortfall, and JP Morgan's comments on Tuesday seemed to conflict with remarks it made earlier this week to the effect that oil supply and demand is currently robust - which in turn was an about face from its earlier forecast of an Iran supply shock.