Morning Market Overview
The declining supply narrative moved into the forefront for most of last week’s trading sending oil prices higher across the complex for the sixth week in a row. The uptrend started on Dec 24 and since then the spot WTI contract is higher by $21.53/bbl or 50.8 percent.
Needless to say, the OPEC production cutting accord with a little help from US sanctions on Iran and Venezuela and fighting again in Libya is working.
OPEC and their non-OPEC partners are clearly pushing prices to a level that meets their financial goals and objectives despite US crude oil production continuing to rise. Even though OPEC has lost market share to the US the higher prices and the destocking of global oil stocks is a more important objective.
Back in 2014 when OPEC decided to support market share in the face of rising US crude oil production it turned out to be a financial failure with the spot WTI prices moving into a downtrend hitting a low of $26.05 in February of 2016. Compared to the February 2016 low the spot WTI price is higher by $37.84 or 145 percent!
I would expect OPEC will continue to focus on a price supporting strategy at the expense of market share for the foreseeable future. Barring any new geopolitical events further impeding supply OEPC has hinted that at their June meeting they would discuss triggers that could move them and thier partners to increase production.
At the June 25/26 policy meeting they plan to look at the level of prices as well as if supply continues to decline due to evolving geopolitical events in many producing countries. This could result in a cap on prices as unlimited movement to the upside will eventually have a negative impact on global economic growth and thus global oil demand growth.
Last week the latest Baker Hughes data hit the media airwaves reporting the number of rigs deployed to the US oil sector increased after increasing for the previous week. This week the oil rig count increased by 2 rigs. Total US crude oil production is about 15.9 percent above where it was for the same week a year ago. This week’s production came in at 12.2 million bpd.