Friday Five: What's moving oil markets this week
1 GEOPOLITICS — Less than a month after four tankers were attacked in the Strait of Hormuz, another two carriers were set ablaze in the Gulf of Oman. US officials once again blames Iran for being behind the attacks, although no group has claimed responsibility. ◉ President Trump threatened Germany with sanctions for its support of Russia's 55 bcm/yr Nord Stream 2 natural gas pipeline, which runs under the Baltic Sea and into parts of Western Europe. The Americans would like to see Europe import more US-produced LNG.
2 SUPPLY — The Energy Information Administration (EIA) lower expectations for total US crude output this year and next by about 1%. The EIA now says production will average 12.32M bbl/day this year, rising to 13.26M bbl/day in 2020. ◉ The International Energy Agency (IEA) says there's "plenty" of non-OPEC supply growth, while OPEC members sit on about 3.2M bbl/day of spare capacity. Barring any major geopolitical shock, this is expected to prevent any "significant upward pressure" on oil prices.
3 DEMAND — Globally, the EIA expects another 2 million bbl/day to be added to world oil markets next year, with 70% of those barrels coming from the US. Unfortunately, global oil demand growth is only expected at 1.4 million bbl/day next year. ◉ The IEA lowered its 2019 GDP growth forecast to 3.2%, and warned that global trade growth has now declined to its lowest levels since the last financial crisis. Growth is expected to rebound to 3.4% next year.
4 US DOLLAR — The US dollar gained almost 1% for the week, closing back above 97 and recovering most of last week's losses.
5 SENTIMENT — Brent briefly dipped below US$60 a barrel earlier in the week, for the first time since last January. Oil prices recovered slightly by Friday, but still ended the week lower. Brent slid 2%, a fourth consecutive week of declines, while WTI fell almost 3%. ◉ Money managers are turning more bearish on oil prices, particularly WTI, where short positions increased by 24,000 contracts and long positions were trimmed by 28,000 contracts. ◉ Backwardation has eased slightly on Brent futures, as supply disruptions on Russia's Druzhba pipeline begin to ease.