Displaying items by tag: OPEC

(Houston)

The oil market has been in an interesting period since at least 2014. In the years prior, many had been worried about the concept of peak oil, or the idea that the world was past its peak output of oil and that supply would grow ever tighter. Then the shale boom happened and the world was suddenly floating in the stuff, causing prices to plummet. Now we are somewhere back in the middle as there are genuine concerns about supply at the same time as growing demand. Shale growth is slowing in the face of capital constraints and pipeline issues, and “The Saudis are just about out of spare capacity”, according to a top energy adviser.

FINSUM: We think the concerns over supply are legitimate enough that they will be supportive of prices even if we are slowly headed towards recession. That said, we think more supply will come to market to meet demand than many anticipate.

(Houston)

Stocks fell around 0.5% yesterday after being down much more. Oil fell 4%. The reasons why are many, but mostly it seemed to be bad timing. Saudi Arabia announced it would pump more oil at the same time as the market is worried about economic growth and aggregate demand. Invesco’s chief market strategist summarized the situation best, saying “Markets have underreacted to tariffs, because they weren’t really tangible. Now it’s getting more tangible with the IMF lowering growth forecasts and showing up in what could be seen as canaries in the coal mine … That’s putting downward pressure on stocks and on oil”.

FINSUM: We feel like oil is too high for where it should be right now. That said, the geopolitical risks surrounding Saudi Arabia could have a directly negative affect on gross oil supply, which would be positive for prices.

(Houston)

You want to know an asset class that has performed well in periods of rising rates? Take a look at oil. In periods of quickly rising rates and yields, oil and oil-related stocks have done very well. In fact, Van Eck’s Vectors Oil Service ETF (OIH) has been the best performing fund of its type in such periods. “Shares in the VanEck Vectors Oil Services ETF saw a 6.5 percent boost over the month when rates jumped, while shares of the United States Oil Fund ETF ran up 4.5 percent”, according to Kensho.

FINSUM: Oil and banks tend to do well in periods of rising rates. The former because rising rates usually mean a strengthening economy, and the latter because of both an improving economy, but also wider net interest margins.

(Houston)

The oil market is continuing to thrive and the near-term outlook is strong. WTI oil, the US benchmark is currently trading at over $72 per barrel, while Brent, the world’s benchmark is at $80. The commodity is moving higher as markets are worried it will not be easy for producers to easily offset the losses of production in Venezuela and Iran, meaning supply may be constrained. OPEC generally agrees that when oil gets to $80 or above, it crimps demand.

FINSUM: The near term outlook for oil looks strong because of renewed US sanctions on Iran. However, in the longer term, the trade war seems likely to take a toll on emerging market economies, which will send oil demand and prices sagging.

(Houston)

The oil market is in an odd place right now. Generally described as “tight”—when supply and demand are very close, prices have risen considerably over the last several months. That said, prices have fallen steeply over the last week or so on fears of falling demand and rising supply. That is what makes today’s call on oil so bold. Barron’s, citing a senior research analyst on the oil market, says that prices may rise from their current high $60s range all the way to more than $100 this year. The core of the argument is that supply increases are not enough to offset growing global demand.

FINSUM: We don’t see oil going that high, but it could resume its bullish run. The core idea for us is that the oil market has many ways to increase supply (e.g. using strategic oil reserves, loosening sanctions etc), so we don’t see prices rising that sharply.