Oil prices are headed for the biggest weekly decline since January as it appears the OPEC deal is falling apart at the seams
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Friday, November 4, 2016
Oil prices settled at a six-week low on Thursday following several consecutive days of large price declines. The major catalysts this week were doubts over an OPEC deal and EIA data showing a record build up in crude oil stocks. The EIA said Wednesday that U.S. oil inventories rose by 14.4 million barrels last week, the largest gain in a single week since data collection began in the early 1980s. WTI plunged below $45 per barrel on the news and the five consecutive days of losses was the longest streak since June.
The data could be misleading, however. The huge buildup in inventories came largely because weekly imports spiked. Imports rose by about 2 million barrels per day last week after several weeks of hovering at below-average levels. The import spike was partially affected by bad weather, including a hurricane, and could be an anomaly. If that is the case, crude stocks probably won’t gain at similar rates in the weeks ahead.
Still, sentiment is negative after such a down week. "The persistent market dynamic of softer demand and stronger supply will become a more dominant driver of prices as the impact of OPEC's verbal interventions begins to fade and expectations for coordinated cuts are readjusted," BMI Research said in a note to clients.
OPEC deal probable, Citi says. Saudi Arabia and Russia are “hungry for an agreement,” Ed Morse, the head of commodity research at Citigroup, said this week. That means that OPEC and several non-OPEC countries will probably reach a deal at the end of the month to cut oil production. "We’re expecting the parties that need to do something to boost prices to be serious about deciding something," Morse said. For its part, OPEC said it was “deeply optimistic” this week that they would reach a deal.
Oil prices to stay below $60 per barrel in 2017. A Wall Street Journal survey of 14 investment banks predicts that oil prices will not rise above $60 per barrel for another year. The average forecast of the 14 respondents puts Brent oil prices at $56 per barrel in 2017 and WTI at $54. Those figures are down $1 per barrel from last month’s survey, and stand in stark contrast to forecasts from a year ago, which predicted oil to move above $70 per barrel this year.
Colonial Pipeline still closed. The largest pipeline ferrying gasoline around the U.S. has been closed since Monday due to an explosion. The Colonial Pipeline carries gasoline from the Gulf Cost to the Southeast and Northeast U.S., and its closure has led to a spike in gasoline futures. On Tuesday, gasoline futures spiked as much as 15 percent, the largest single day increase in nearly a decade, according to the WSJ. The pipeline’s operator had hoped to have it back up and running by this weekend but a small fire continued to burn as late as Thursday. Nearly two months ago, the pipeline was shut after a leak, a short outage that also led to higher gasoline prices in regional markets. The WSJ reports that more than 60 percent of U.S. fuel pipelines are more than 46 years old, posing questions around the integrity of some of the nation’s largest oil and gas conduits.
Attacks in Nigeria continue. Sabotage by the Niger Delta Avengers and other militant groups against oil infrastructure continue to pick up pace. The latest attack hit a flow station along Royal Dutch Shell’s (NYSE: RDS.A) Trans Forcados pipeline. In a statement the Niger Delta Avengers said that its attack was to warn oil companies that “there should be no repairs [to pipelines] pending negotiation/dialogue with the people of the Niger Delta.” U.S. intelligence officials told CNBC that the worrying thing for Nigeria is that Niger Delta militants could splinter, leading to ongoing attacks under no coherent umbrella, making them more difficult to control. Nigeria’s oil production recently rose to 1.9 million barrels per day but the attacks threaten to derail more gains.
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North Sea oil production set to jump. Oil shipments from the aging North Sea could rise by 360,000 barrels per day between September and December of this year, taking output for the region up to 2.16 million barrels per day. The buildup of tankers in the North Sea is starting to clear, adding to the global surplus of supply and complicating the effects of a potential OPEC agreement on oil prices.
Solar stocks plunge on glut of panels. First Solar (NASDAQ: FSLR) saw its share price fall by 18 percent on Thursday, taking it multiyear lows, after it missed revenues and pointed to a global glut in solar panels. Prices for panels have declined 30 percent in large part due to a slowdown in demand from China, First Solar said.
U.S. presidential election poses market uncertainty. The S&P 500 has suffered a string of losses lately, which many attribute to jitters over uncertainty regarding the outcome of next week’s election. The markets seem to prefer Hillary Clinton over the uncertainty of Donald Trump, and indices have sunk as the campaign has tightened in recent days.
By Evan Kelly of Oilprice.com
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