Friday Five: What's moving oil markets this week
1 GEOPOLITICS — Not much new on the geopolitical front this week. US waivers for purchases of Iranian crude expired last Friday, but India and China are expected to maintain imports as part of their oil-for-debt repayment plans. President Trump also expanded Iranian sanctions to include steel, aluminum and copper, much to the dismay of the Iranian government. The Iranians have promised to retaliate, and have suspended some of their commitments under the previously-agreed nuclear deal.
2 SUPPLY — According to the Energy Information Administration (EIA), OPEC production is expected to fall from an average of 32.0 million bbl/day in 2018, to 30.3 million this year, and 29.8 million bbl/day in 2020. Not surprisingly, Venezuela and Iran are responsible for most of the declines. The agency once again bumped up its US crude production forecast, now expected at 12.5 million bbl/day this year, rising to 13.4 million in 2020. Last week's output was forecasted at 12.2 million bbl/day. US oil rig counts are still trending sideways, estimated at 805 this week.
3 DEMAND — Despite the expected drop in OPEC output next year, the EIA warns supply is still expected to outpace demand by about 100,000 bbl/day in 2020, due to rapidly rising US output. China imported a record 10.6 million bbl/day of crude in April, up 15% from the previous month. However, some analysts speculate the unusually high demand is for stockpiling in anticipation of lower Iranian crude exports. After a 10-month ceasefire, US/China trade war jitters resurfaced again this week, sparked by a major increase in US tariffs on Chinese imports. Slowing trade between the two superpowers may increase the risk of a global economic slowdown.
4 US DOLLAR — The greenback was little moved this week, but remains above the key support level of 97.
5 SENTIMENT — After touching new highs in mid-April, oil prices continue to rollover, with each major benchmark posting a loss for the week. Backwardation steepened further on Brent, likely in response to the shutdown of a major Russian export pipeline last week. Traders added new short positions on WTI, but remain relatively bullish on Brent prices.