Crude Market Choppy as Traders Continue to Ignore Overwhelming Signs That Global Supply is Healthy

Thursday April 25, 2019

Thursday saw the continued phenomenon of the crude market being burdened by insecurity, despite overwhelming news pointing to its robust health and analysts insisting many issues that have caused hand-wringing - first and foremost being the effect the Iran sanctions will have on the global market - have been oversold.

Due to quality concerns halting some crude exports from Russia to Europe - which some feared was an addition to the production troubles facing Iran, Venezuela, and Libya - West Texas Intermediate settled 68 cents lower at $65.21 per barrel on Thursday, while Brent fell 22 cents to $74.35.

Andy Lipow, president of Lipow Oil Associates, said, "We consider the quality issues with Russian crude oil as a supply disruption that is happening at the same time sanctions on Iran and Venezuela are impacting supply."

According to S&P Global Platts, about 700,000 barrels per day (bpd) of Russian oil that usually transits through the Druzhba line bound for Germany, Poland, and Belarus were suspended after contaminated supplies were found.

But as was the case with trading in previous sessions driven by the perception that the market is tightening, the motivations for Thursday's performance puzzled many onlookers - and in the case of Russia, the quality issues appear to be fleeting.

Indeed, no sooner had the bad news been disclosed than Belarus made an offer to Russia to reverse oil flows on the Druzhba pipeline, to get rid of contaminated oil and start pumping oil via an alternative route.

Meanwhile, Iraq joined the chorus of countries proclaiming that any shortfalls from Iran due to the sanctions can be offset with relative ease: Thamer Ghadhban, oil minister for that country, told media that Iraq had the capacity to increase its oil production to 6 million bpd if needed, but that there were no acute oil shortages for the time being.

More news on Thursday that any tightening worries can be offset by other countries was delivered by WISERTrade: it stated that Texas's exports totaled more than $50.9 billion in the January-February period of 2019, increasing 9 percent from a year earlier and triple the national rate.

If that wasn't enough, Brian Hook, U.S. special representative for Iran and senior policy adviser to the secretary of state, said on Thursday, "there is plenty of supply in the market to....maintain stable prices."

To which Bjoernar Tonhaugen, head of oil research for Rystad, added, "Saudi Arabia and several of its allies have more replacement barrels than what would be lost from Iranian exports: since October 2018, Saudi Arabia, Russia, the United Arab Emirates, and Iraq have cut 1.3 million bpd, which is more than enough to compensate for the additional loss."