• 1 day PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 1 day Schlumberger Warns Of Moderating Investment In North America
  • 1 day Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 1 day Energy Regulators Look To Guard Grid From Cyberattacks
  • 1 day Mexico Says OPEC Has Not Approached It For Deal Extension
  • 1 day New Video Game Targets Oil Infrastructure
  • 1 day Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 2 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 2 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 2 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 2 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 3 days Conflicting News Spurs Doubt On Aramco IPO
  • 3 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 4 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 4 days China To Take 5% Of Rosneft’s Output In New Deal
  • 4 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 4 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 4 days VW Fails To Secure Critical Commodity For EVs
  • 4 days Enbridge Pipeline Expansion Finally Approved
  • 4 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 5 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 5 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 5 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

Clashes In Kurdistan Send Oil Prices Higher

Reports of skirmishes between Iraqi…

Alt Text

Mass EV Adoption Could Lead To $10 Oil

As the adoption of electric…

Brian Noble

Brian Noble

Brian Noble is principal with Financial Communications in Toronto, Canada which specializes in communications initiatives for the Canadian and global financial services industry. Brian Noble MA,…

More Info

Are Traders Overlooking The Real Oil Price Influencer?

fracking operation

Was the meeting between the OPEC and non-OPEC oil ministers in St Petersburg, Russia on 24 July a game changer or not? There were high hopes for additional production cuts, which were partially realized, but just what does the playbook look like?

1) Saudi Arabia announced its intention to make further cuts to bolster flagging oil prices. Saudi minister Khaled al-Falih said that Saudi oil exports would be limited to 6.6 million barrels per day, a decline of about a million barrels or almost 14 percent compared to last year. Sounds impressive, but note that’s exports, not production.

2) Nigeria agreed voluntarily to limit its production to 1.8 million bpd (but only once or if it reaches that level). But Libya with a target of 1.25 million bpd remains exempt.

3) Non-compliance remains an issue for OPEC and non-OPEC participants alike. For instance, Iraq’s OPEC compliance has fallen to 29 percent, which clearly presents a threat to the agreement.

But is it enough? The market seems to think so as WTI has soared $2.95 since the meeting. Nonetheless, the biggest winner from St. Petersburg will undoubtedly be the U.S. shale producers. Rystad Energy is predicting that before the end of this year, monthly U.S. oil production will top the record 10 million barrels per day that was set in November 1970. Too bad for OPEC, since the cartel hardly has any control over U.S. shale production. On the other hand, the biggest loser is bound to be the Saudi treasury as the Saudi central bank’s holdings of all types of foreign securities combined shrank by about $40 billion in the 12 months through March of this year. This raises the question of whether the Saudis are still in the driving seat when it comes to oil prices. A question that can surely only be answered with a resounding “no”.

The U.S. CFTC Commitments of Traders data released on Friday 21 July clearly confirmed who is driving the bus: global traders are short U.S. dollars, period. They have increased their long euro positions (at a 6-year high), reduced short sterling positions and also increased long Australian and Canadian dollar positions (as the CAD nudged towards 80 cents for the first time in several years.) The message is very clear: the world’s central banks, not Riyadh, are calling the shots. At the same time, bullish bets in the WTI futures market increased almost 11 percent by over 38,000 contracts on the week to total 396.5 thousand contracts, a high not seen since last spring. Related: Europe’s Biggest Oil Refinery Shut Down After Fire

As we all know, a weaker U.S. dollar means higher commodity prices even though the logic of this can be disputed. But if that’s how the algorithms read it, then this shibboleth must be right. Consider the Dixie or U.S. dollar index (DXY), which is now down over 8 percent from the beginning of the year during a period when the Fed hiked rates not once, but twice. As for the dollar, short positions will also certainly continue to increase mainly due to political gridlock in the U.S. as the Trump trade is finally put to bed. In addition, further rate hikes from the Fed are becoming less likely owing to softer-than-anticipated economic fundamentals, including GDP growth and mute inflation.

 

(Click to enlarge)

Fundamentally, the world is still well supplied with crude, which remains at historically high inventory levels despite the recent string of impressive drawdowns in the U.S. But after all, this is the time of year before semi-annual maintenance season that big drawdowns can be expected. Technically, we are still in a downward sloping channel and looking pretty overbought; mean reversion is more probable than significantly more upside.

Doha, Vienna, St. Petersburg: the cycle of expectation and disappointment repeats itself. If you’re looking for a rationale for the crude price, it’s dollar weakness, not commodity strength.

By Brian Noble for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News