IEA says "mission accomplished" for OPEC oil deal. File Image / Pixabay
John Kilduff, founding partner, Again Capital
Syria is a client state of both Russia and Iran and the risk for escalation is quite high
A week of remarkable crude gains influenced almost exclusively by geopolitical tension ended on Friday with West Texas Intermediate settling up 32 cents to $67.39, its best weekly performance since July (it earlier touched its highest intraday level since December of 2014), and Brent climbing 58 cents at $72.60 per barrel.
The session ended just as U.S. president Donald Trump announced air strikes against Syria in response to a deadly gas attack conducted by that country's Assad regime - a move that is sure to dominate trading activity next week.
John Kilduff, founding partner at Again Capital, remarked, "The geopolitical jitters just keep getting priced in here more and more, as we get closer to the moment of the strikes, if there are any," and he added that "Syria is a client state of both Russia and Iran and the risk for escalation is quite high and I think that is what the market is worried about."
Potentially, if the air strikes don't completely dominate trader activity next week, another thing that may sway prices is the stance taken by the International Energy Agency: even though the actions and the messages from the Organization of the Petroleum Exporting Countries (OPEC) have repeatedly indicated otherwise, the IEA said OPEC and its allies appear to have accomplished their mission of bringing global oil stocks to desired levels.
In its monthly report, the agency stated, "It is not for us to declare on behalf of the Vienna agreement countries that it is 'mission accomplished', but if our outlook is accurate, it certainly looks very much like it."
The IEA went on to note that even though non-OPEC output was set to soar by 1.8 million barrels per day (bpd) in 2018 on higher U.S. production, it will not be enough to meet global demand, expected to rise by 1.5 million bpd: "Our balances show that if OPEC production were constant this year, and if our outlooks for non-OPEC production and oil demand remain unchanged, in 2Q18-4Q18 global stocks could draw by about 0.6 million bpd."
But the IEA's conclusions are based on the five year average that OPEC used to trumpet its cutbacks success, before it conceded that better metrics (including perhaps a shift to a seven year average) were required to truly calculate global supply and demand health.
Plus, as noted by Bloomberg on Friday, Saudi Arabia is increasingly eager to revise the target, arguing that the cuts need to continue to ensure markets have properly rebalance: "The producers, who will meet in the Saudi city of Jeddah next week, have examined alternative metrics that filter out excessively-high stockpiles seen in recent years."
Although some members of the media have professed to be baffled as to why OPEC would want to extend its production cuts if the global glut has been cleared, Daniel Dicker, founder of The Energy Word, earlier this week explained patiently,"It means a massive upside for oil" - a reference to the desire of many OPEC members, especially the Saudis, to obtain crude prices that will boost their ailing economies.