Friday Five: What's moving oil markets this week
1 GEOPOLITICS — Tensions between Iran and the UK flared up this week after three Iranian vessels tried to stop a BP-operated tanker from travelling through the Strait of Hormuz. The incident comes one week after the UK seized an Iranian tanker off the coast of Gibraltar for violating sanctions on Syria. Iran has threatened retaliatory action if its tanker is not released.
2 SUPPLY — According to the Energy Information Administration (EIA), total US output is now forecasted to average 12.36 million bbl/day in 2019, up 40,000 bbl/day from its previous forecast. Next year's production forecast was left unchanged at 13.26 million bbl/day. Expectations for global oil supply this year were also increased by 260,000 bbl/day to 101.1 million bbl/day. ◉ OPEC production fell another 68,000 bbl/day last month, to 29.8 million bbl/day. The cartel cut its 2019 non-OPEC oil supply forecast to 64.4 million bbl/day, rising to 66.9 million bbl/day next year. As a result, OPEC's 14 members need to produce just 29.3 million bbl/day next year, 500,000 bbl/day less than the current output, and 1.34 million bbl/day below the 2019 average.
3 DEMAND — According to the EIA, total global consumption for this year is now estimated at 101.0 million bbl/day, down 140,000 bbl/day from its previous forecast. World oil supply is also expected to outstrip demand by 150,000 bbl/day in 2020. As a result, global stockpiles are expected to continue rising in 2019 and through the end of 2020. ◉ International Energy Agency warned of "deteriorating trade and manufacturing activity," downgrading its Q2/19 demand forecast. Demand growth for the full year 2019 was left unchanged at 1.2 million bbl/day, rising to 1.4 million bbl/day in 2020. The agency also warned supply is significantly outstripping demand, and may require OPEC to cut another 2 million bbl/day next year.
4 US DOLLAR — The US dollar declined 0.5% this week, giving back some of last week's gains.
5 SENTIMENT — Oil prices are in a short-term uptrend, topping the most recent highs of late June. Disruptions in the Gulf of Mexico helped move WTI above US$60 a barrel for the first time since late May. ◉ Net long positions nudged lower last week for both WTI and Brent managed money contracts. Traders paired back long positions on both benchmarks, adding new short positions on Brent contracts.