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Political anxiety affecting crude markets ‘positively’

POLITICAL issues are enhancing the anxiety of crude markets, with the US missile attack on Syria and the growing developments in North Korea contributing to it.

Last Tuesday, the North Korean state media warned the US of a nuclear attack at any sign of American aggression as a US Navy strike group steamed toward the western Pacific. For the first time on Saturday, it displayed its submarine-launched ballistic missiles (SLBM). In the meantime, US President Donald Trump tweeted North Korea was “looking for trouble” and the United States would “solve the problem” with or without China’s help.

This did not help ease the geopolitical tension either. But developments pertaining to Syria hovered over the crude markets. Rising tensions in the oil-rich Middle East, supported by a shutdown at Libya’s largest oilfield over the weekend, gave a fillip to anxiety in the markets. Oil prices rose from around $51.20 to about $52.60 upon news that the US military launched 59 missiles against an airbase in Syria after the Syrian government allegedly used chemical weapons in a rebel-held area.

However, markets also realised that one attack on Syria didn’t alter the ground realities in the real sense.

One US air strike on Syria does not make an oil price crisis, Colin Cieszynski, chief market analyst for CMC Markets in Canada told Global News.

Markets in the meantime were also buoyed by the news from Russia that it would be 100 per cent in compliance with the terms of a production deal with the Organisation of the Petroleum Exporting Countries (Opec).

Russian Energy Minister Alexander Novak said at the very least full compliance to a cut of 250,000 bpd could come by the end of the month, possibly sooner. “We will deliver,” he was quoted by Tass as saying.

Opec also slashed its output in March by more than the pledged. Production from 11 Opec members averaged 29.757 million barrel per day in March, an Opec report underlined. The current figures mean Opec production has fallen by more than its commitment, amounting to 104pc adherence to the supply cut regime. Even, including Nigeria and Libya, the two members exempted from the Opec output cut deal, production by all 13 Opec members in March fell to 31.939m bpd. That would be down 19,000 bpd from Opec’s February output.

Reports by The Wall Street Journal last week said Saudi Arabia told Opec officials it wanted to continue the cuts to continue for an additional six months, also helped the markets.

In the light of all this, and with the refining maintenance season almost over, and, the summer driving season in North America about to commence, RBC Capital Markets Head of Commodity Strategy Helima Croft is of the opinion that crude oil prices will climb to the low $60s within months — a nearly 20pc move from current levels.

Demand won’t fall anytime soon, Croft insists.

Investment Bank Goldman Sachs, in an outlook note, seems to maintain a return to stable long-term oil prices, saying its confidence in long-term oil prices has increased due to improvements in technology and lowering costs of shale extraction. Price fluctuations are now likely to be within the realm of 10-20pc, rather than the quadrupling when new technology methods were being trialed, the note said.

Goldman’s long-term WTI price of $50 per barrel remains slightly lower than its 5-year estimate of $54 per barrel, however, the bank said it anticipates a positive outlook going forward – one not seen for almost 15 years.

And despite projecting a slowdown in demand growth the second year in running, the International Energy Agency (IEA) underlines that the oil market is poised for a recovery in the second half of the year following the supply cuts from major oil producers.

This was despite the fact that oil inventories in the 34-nation OECD increased by 38.5m barrels in the first quarter to about 3 billion barrels, offsetting the decline in emerging economies, the IEA estimated.

US crude output reportedly also rose by 36,000 barrels a day last week to 9.24m bpd, the US EIA reported. And in the meantime, the IEA data also revised down its initial estimates for global oil demand growth.

Despite hiccups, Opec’s efforts towards stabilising the crude oil markets appear to be succeeding garnering fruits – in the process. And this should also carry a considerable positive impact on the proposed Aramco IPO.

Courtesy : Dawn News



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