After the Opec+ decision on November 30 to extend the global oil output cut deal until the end of 2018, benchmark oil futures continued last week to seesaw in a volatile trade, with gains following losses, as market players were looking beyond the agreement for further signals on where the market will move in the coming weeks and months.
The factors that weighed negatively were mainly: some profit taking, the US rig count and crude production increases, and the rise in US gasoline and distillate stocks.
The factors that were supportive were mainly: short covering, rising Chinese oil imports, the Opec+ deal extension and strong Opec compliance in November, US crude oil stocks drawdown, hedge funds net long positions, and a strike threat in Nigeria.
US crude oil inventories continued to fall in the week to December 1, with another decline of 5.6mn barrels, reflecting a period of time where the Keystone pipeline was still largely shut. While US gasoline & distillate stocks rose by 6.8 and 1.7mn barrels respectively, signalling some weakness in US oil product demand, US crude production hit a new record of 9.71mn bpd, not far from the 10mn bpd record of 1970s, according to EIA data.
The US oil rig count increased by 2 rigs to reach 751 in the week to December 8, according to BHGE data. Some energy specialists are estimating the total oil & natural gas rig count to be an average of 876 in 2017 (509 in 2016), while the 2018 forecast is 1001, as E&P companies, including some majors like Chevron, are expanding their spending, drilling & completion plans (Reuters).
China’s November crude oil imports rose to 37.0mn tonnes, or around 9.0mn bpd (7.3mn bpd in October), data from Chinese Customs showed. Cumulatively during the first eleven months of 2017, Chinese crude oil imports increased by 12% compared to a year earlier, to reach 386mn tonnes (8.44mn bpd). Higher imports were supported by significant refining margins as China raised domestic fuel prices twice in November (Reuters). This demand boom is assessed to push China ahead of the US as the world’s largest crude oil importer in 2017.
Benchmark oil futures prices finished last week with another decline of about 0.5% for the Brent, and 1.7% for the WTI, but still at a relatively short distance with their peaks of the year reached last month. The oil market is looking now for consistent fundamental signals as to what the future holds, as oil prices during the last six months were mainly dominated by the rebalancing streak and the associated expectation of the Opec+ deal extension decision.
Currently, the oil market indicators are offering conflicting signals leading prices to record losses that are followed later by some gains, in reaction to the present volatile market environment. This volatility may continue to prevail until the figures of the full year 2017 will be released early next year, and a better picture of 2018 would be made available.
Until then, we expect crude oil market prices to continue to evolve in a $50-$65 range as the market supply-demand balance will remain in a not-so-good/not-so-bad situation until at least the end of the first half of 2018.
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