Friday Five: What's moving oil markets this week
1 GEOPOLITICS — Four vessels were attacked just outside the Strait of Hormuz on Monday, including two Saudi crude carriers. On Tuesday, two Saudi oil pumping stations were hit by drones packed with explosives, sparking a fire and temporarily disrupting a pipeline. Output from the Middle East has so far not been affected. ◉ Although Iran is suspected to be behind both attacks, no group has claimed responsibility. Iran denies any involvment, but its Revolutionary Guards have threatened to disrupt oil supply through the region. ◉ Iran got support from China this week, who have called the re-instatement of US sanctions unacceptable. ◉ The US moved to evacuate all non-essential staff from its Iraqi embassy in Baghdad, as tensions continue to escalate in the region. ◉ Meanwhile in Venezuela, the US suspended all passenger and cargo flights in and out of the country, citing concerns for passengers, airlines and crews, as Venezuela's economy continues to deteriorate.
2 SUPPLY — Russian oil output slipped to 11.16 million bbl/day for the first half of May, down from an average of 11.23 million bpd in April, and the lowest since June 2018. The cutbacks are being blamed on ongoing problems with the 1 million bbl/day Druzhba pipeline, which ships Russian crude to eastern Europe and Germany. ◉ In its Monthly Oil Market Report, OPEC says its members produced about 30 million bbl/day in April, unchanged from the previous month. Global oil supply was estimated at 99.3 million bbl/day, down 300,000 bbl/day from March. Higher output from Libya, Nigeria and Iraq offset losses from Canada, Kazakhstan, Azerbaijan and Iran. ◉ OECD commercial oil stockpiles remain stubbornly high, rising by 3.3 million barrels in March, bringing the total to 2.88 billion barrels. Despite OPEC's aggressive production cuts, crude inventories remain 20.3 million barrels above the 5-year average. ◉ US drillers took another three oil rigs out of service this week, bringing the total to 802. There were 844 oil rigs in service at the same time last year. According to the Energy Information Administration, total US output dipped to 12.1 million bbl/day last week, down from a record 12.3 million bbl/day in early May.
3 DEMAND — The US and China both boosted tariffs on each other's respective imports, reigniting fears of a global slowdown due to impaired trade between the two superpowers. ◉ Both OPEC and the International Energy Agency kept their forecasts for world oil demand relatively unchanged this month.
4 US DOLLAR — The US dollar continues to consolidate and slowly grind higher, adding another 0.7% this week.
5 SENTIMENT — Brent and WTI both posted gains of about 2% this week, reversing several weeks of declines. ◉ Backwardation continues to steepen on Brent, particularly in the near months, on concerns of supply disruptions out of Russia, Iran and Venezuela. ◉ WTI managed money futures and options contracts saw a sharp decline in new long positions, while traders piled on new shorts.