Friday Five: What's moving oil markets this week

Friday Five: What's moving oil markets this week

GEOPOLITICS

France has put forward a plan to restart talks on Iran's nuclear ambitions, which would require the Iranians to abandon the pursuit of nuclear weapons in exchange for the removal of US sanctions. Iran has agreed to continue discussions, while the Trump Administration continues to send out mixed messages.

Saudi Arabia and Houthi militants have declared a partial cease-fire, putting a temporary pause on four years of fighting in Yemen. The rebels claimed responsibility for the September 14 attacks on two Saudi oilfields, although many officials continue to blame the bombings on Iran.

DEMAND

Another drop in refinery run rates resulted in a 3.1 Mbbl increase in US crude stockpiles, a third consecutive week of gains. Refinery utilization slid to 86.4% last week, with most of the declines seen in the USGC and West Coast.

The WTO sharply downgraded its 2019/2020 trade growth forecast, blaming escalating trade tensions, Brexit and a slowing global economy. World merchandise trade volumes are now expected to rise just 1.2% this year, far less than the previous forecast of 2.6%. 2020 growth was also downgraded from 3% to 2.7%, subject to a "high degree of uncertainty."

SENTIMENT

As of last Tuesday, WTI traders added shorts and reduced long positions on managed money contracts. Net longs were cut by 65,000 contracts versus the previous week.

Brent traders held the line on shorts but liquidated long positions, reducing net longs by about 17,000 contracts.

The two major benchmarks suffered a second consecutive week of steep losses, with Brent returning to the levels of early September, and WTI returning to the lows of early August. Both futures curves remain in backwardation, but the negative spreads narrowed slightly this week.

SUPPLY

Total OPEC output sank to an 8-year low of 28.9 Mbbl/day in September, down 750 kbbl/day from the previous month.

Saudi Arabia supplied 9.05 Mbbl/day in September, with about 500 kbbl/day sourced from storage volumes. The kingdom is currently averaging about 9.8 Mbbl/day, on par with its August average. The Saudis have now restored their production capacity to 11.3 Mbbl/day, on par with levels before the September 14 attacks.

Iraqi oil exports dipped to 3.58 Mbbl/day in September, down from 3.60 Mbbl/day in August.

Ecuador announced plans to exit OPEC next year, due to "internal challenges" that have strained the country's finances. The country produces about 545 kbbl/day, well above its quota of 508 kbbl/day, and says it plans to boost output in order to raise revenues.

Russian output dipped from 11.29 Mbbl/day in August to about 11.24 Mbbl/day in September, still slightly above its OPEC+ quota.

The EIA says total US crude output dipped to 11.8 Mbbl/day in July, down from a record 12.1 Mbbl/day in April. The decline was blamed on GoM outages due to Hurricane Barry. Preliminary weekly estimates peg total US output closer to 12.3 Mbbl/day in August, and 12.4 Mbbl/day in September.

Baker Hughes reported a seventh consecutive weekly decline in US oil rig counts, falling by another three this week, leaving just 710 rigs in service, a 29-month low. Canada gained 17 oil rigs, ending the week at 105.

US DOLLAR

The US Dollar Index closed above 99 on Monday, a first since May 2017. The greenback edged up 0.2% in September, its third consecutive monthly increase. The dollar retreated 0.3% this week, due in part to weaker-than-expected US manufacturing and services data.

Cenovus puts shareholders first, as it works towards reducing its debt load

Cenovus puts shareholders first, as it works towards reducing its debt load