Naft

Issue 15                                                                                                                              May 27th 2018                                                                                                                                

Good Day All,

Ramadan Kareem to all of you.

I have the pleasure to resume this newsletter after a gap of more than a year. On the eve of Ramadan, the world’s two leading producers, Saudi Arabia and Russia expressed their willingness to raise the crude output by 1 million barrels per day. This noble gesture amply demonstrates the generosity of the OPEC/non-OPEC leaders and will prove to be a great relief to the major consumers like India and China. Consumers were facing a tough situation due to recent steep rise in crude prices due to Venezuela’s reduced oil production and the sanctions being imposed on Iran. The announcement to raise the crude production led to softening of the WTI crude prices from 70.71 USD per barrel to 67.40 USD per barrel, nearly 4.7% lower, on May 25, 2018.

CRUDE OIL INVENTORIES

Both API and EIA reported the crude oil inventory for the week ending May 18, 2018.

According to the Energy Information Administration (EIA), U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.8 million barrels from the previous week. On the other hand, API reported an increase of 1.3 million barrels for the same period. Analysts polled by S&P Global Platts expected stockpiles to decline by 1.7 million barrels.

OIL RIG COUNT IN US

The number of US Oil Rigs as reported by Baker Hughes on May 25, 2018 has increased by 15 over last week to 859. This double digit rise is quite sharp in recent times.

OIL PRICE OUTLOOK

U.S. crude oil imports averaged about 8.2 million barrels per day last week, up by nearly 558,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.9 million barrels per day, 3.5% below the same four-week period last year.

What Next?

With the current crude price level and economic growth rates of the major importing countries, the global demand is expected to rise by 1.73 million barrel per day to 102.1 million barrels per day by 2019. In this context, a raise of 1 million barrel per day of additional production is going to be absorbed very fast.

Lower oil prices spur the oil demand further. The Friday’s decline in crude price will improve the demand and also promote the dependency on oil and delay the switch to alternate sources of energy. The world has been and will remain addicted to oil till it really hurts. The price level at which it is expected to begin hurting is USD 120 per barrel. However, the rise needs to be gradual and not difficult to absorb.

In response to growing anxiety over rising oil prices from major oil consumers, Saudi Arabia's oil minister, Khalid Al-Falih, and Russia's oil minister, Alexander Novak, met privately in St. Petersburg during the St. Petersburg International Economic Forum to discuss possibly increasing oil production. The outcome, according to Saudi minister Al-Falih, would be to gradually bring more barrels of oil to the market from OPEC and non-OPEC countries currently participating in the OPEC/Non-OPEC production cut deal. Al-Falih signaled that this could be up to 1 million barrels per day and could begin in the second half of 2018.

Let’s wait and watch the outcome of the OPEC/non-OPEC meeting in Vienna on June 22nd 2018.

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