Morning Market Overview
The oil complex is now technically in a bear market having declined by over 20 percent from the highs hit earlier this year. Oil prices have declined for the last five weeks in a row with the spot continuation WTI contract now lower by $16.71/bbl or 21.7 percent since peaking on October 3.
The negative trading performance has occurred in the lead up to the official start of the US sanctions on Iran which went into effect on Nov 4. Along the way OPEC and their partners to the production cutting accord have been increasing production while US production has soared over the last month. Total stocks of crude oil and refined products in the US has steadily increased since bottoming in early April. Total stocks have increased by 72.4 million bbls since April 4 and are now well above the 5- year average and remain in a building pattern.
The increase in US stocks coupled with inventory gains in other major locations around the world have mostly eliminated the concern in the market that there will likely be any supply and logistics issues from the sanctions anytime soon. Over the weekend the Saudi Arabian oil minister indicated plans to reduce exports by 0.5 million bpd in December versus November (according to Reuters). Saudi Arabia is setting the stage for the upcoming Dec OPEC/non- OPEC meeting where production levels will likely be the main and only topic of discussion as producers face the facts that oil prices have declined steeply, and global inventories are building. Saudi Arabia is also discussing a proposal that could see OPEC and non-OPEC oil producers cut output by up to 1 million bpd, two sources told Reuters earlier on Sunday, as the world’s top oil exporter deals with the strong decline in crude prices.
Friday afternoon the latest Baker Hughes data hit the media airwaves reporting the number of rigs deployed to the US oil sector increased by 12 rigs on the week after increasing during the previous week. Total rigs deployed to the oil sector are higher by 148 or 20 percent year over year. This week’s production came in at 11.6 million bpd.