Saturday, 11 June 2016

Speculators trying to drive oil market

After oil price touched US$50/barrel mark, speculators seem to have entered the market once gain. The situation is ideal because glut is shrinking due to outages. Speculators have started talking about consumption.  I have a gut feeling that outages in Nigeria are part of the usual geopolitical mantra.
The hype about rising demand is paving way for the resumption of output by Shale rigs. Saudi-Iran animosity is also being spread by main stream media, only to divert attention from atrocities of Israel against Palestinians.
According to Oil & Energy Insider, crude prices closed and opened above US$50 per barrel this week, the first time that has happened in 2016. The highest supply outages in years have rapidly shrunk the global surplus. Prices fell back on Friday due to a stronger dollar Speculators were prompt in pocketing profit. The EIA reported inventory drawdown.

It is being portrayed that oil demand is on the rise and the supporting argument is a record gasoline consumption in the US. Demand by refineries is nearing record highs as the world takes advantage of cheap fuel. This sounds dubious because gasoline demand should have jumped when price was hovering below US$40 per barrel.
Top analysts are not convinced that oil prices will move higher, arguing that the rally could be running out of steam. Supply outages in Canada are starting to be resolved. Also higher oil prices could restart some drilling in the shale patch. The dollar could strengthen, putting downward pressure on prices. And oil inventories are still at record highs.

The Trans Niger Pipeline was shut down lately due to a leak, taking another 130,000 barrels per day offline. The pipeline carries Bonn Light and is run by Shell, Eni, Total, and the Nigerian National Petroleum Corporation. Shell declared force majeure on Bonny Light in May when another pipeline that carries the oil stream, the Nembe Creek Trunk Line, was damaged by an attack. The Nembe Creek conduit, however, was just repaired, which could bring back 75,000 barrels per day.

Oman sold US$2.5 billion in bonds on Wednesday, as it seeks to improve its financial position. The Emirate not a member of OPEC went to the debt markets for the first time in more than twenty years, a sign of how badly it has been damaged from low oil prices.
The move comes after some of Oman’s neighbors issued new bonds earlier this year – Qatar sold US$9 billion in debt and Abu Dhabi sold US$5 billion. Saudi Arabia is also expected to turn to the bond markets, perhaps selling as much as US$15 billion worth of bonds. IMF has warned that the Gulf States to need to do a lot more to cut spending to hold onto their currency pegs.

Bloomberg reports that some oil traders are buying contracts that will only pay out if oil surpasses US$100 per barrel at some point in the next few years. The contracts do not suggest that such an outcome is necessarily likely, but only that some traders view it as a potential profitable position.

The traders buying new contracts are aimed at making people believe that today’s severe cutbacks in exploration and development will create the conditions for a supply shortage somewhere down the line. 

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