![]() ![]() My article, “Crude oil price volatility likely to drop absent policy shift,” in the February 6 Oil & Gas Journal (link below) describes the various elements causing price volatility and where (I think) they will go in the long-term.AIP publishes the Argus crude oil and product quotes for the purpose of price transparency and to assist in demonstrating that the movements in product prices follow the medium term movements in crude oil prices. But the current price spike is clearly driven by transient developments which are much more likely to ease from this point than to worsen. That said, I have been wrong before and no doubt will be again. Economic news seems certain to worsen over the next few months and higher non-OPEC production should see inventories rising through the end of the year. The worst of the geopolitical news is now out with the announcement of European oil sanctions to be phased in, and with the passing of Memorial Day in the U.S., worries about the summer driving season should peak. But also, the three sanctioned oil producers will likely be increasing exports as they work around the sanctions through various means (hint: traders). A decline will signal that inventories are building well in advance of the reported data.ĭifferential between Brent and WTI ($/bbl) The author from EIA data.Ĭlearly, much depends on geopolitical developments, including the war in Ukraine and sanctions on Iran and Venezuela. The figure below shows the difference between the first and fourth month contracts which is the premium for prompt barrels, in other words, an analogue for the tightness in the physical market. The first is the degree of backwardation in the market, or the premium paid for prompt supplies versus those in the future. Two financial indicators should prove very useful as early warning indicators of a market moving towards balance. inventories begin to rise, there is less pressure for exports. oil exports, which are only estimated from previous year’s data in the Weekly Petroleum Statistic Report, are partly the result of the global oil balance, meaning that if U.S. inventory data, which are reported on a weekly basis and serve as an indirect indicator of non-U.S. However, OECD data-reported by the IEA-tends to lag by a couple months and only covers about half the world’s oil industry. That oil cannot be easily measured and while OECD onshore inventories are extremely low, should they begin to increase, it would signal that the global market is returning to equilibrium. Inventory: The embargoes, official and otherwise, on Russian oil translate into a dislocation of supply streams and an increase in stocks at sea, as well as some in onshore storage outside the OECD. Rising rig rates followed by higher production estimates would be bearish in the longer term, but obviously if the numbers fall short of current expectations, prices would be supported. Tight markets for materiel and personnel could hinder this, which would be at least moderately bullish. ![]() oil production is 900 tb/d above the same time last year, meaning that it would have to increase another 500 tb/d or more the rest of the year to reach the projected levels. oil production is expected to increase by more than 1 mb/d this year and would be a major contributor to an improving market balance. Watch for the release of the next IEA Oil Market Report on June 15 th with new estimates of losses. Once that becomes clearer, there is likely to be a dip in prices, perhaps $5=10 for crude. Recent news describes the Russians finding new buyers (mostly in Asia) and their exports might be reduced by only 1 mb/d from this point. Additionally, the market has priced in a loss of 3 mb/d of Russian oil supplies, an amount that the IEA speculated could be off the market as of May but which now appears likely to be the upper limit. ![]()
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