NORTH AMERICAN CRUDE OIL#BULLETIN 3:
The crude price had plunged in the past two months on fears of a global oversupply. Oil at USD 50 is considered as the break-even point and shale drillers have been budgeting their spending plans considering this minimum price for the past years.
Most of the shale oil producers will announce their spending plans in January or February 2019 and there are already signs that they will cut their budget. This will be the first industry cut in North America since 2016
However in the past days, oil prices have reach highs in more than five months. Saudi Arabia and Russia have extended their cooperation and they will probably deal with production cuts during the next OPEC meeting. Following OPEC advisory committee recommendation, members should cut around 1.3 million barrels a day to balance the market.
An unprecedented supply cut was decided in the Canadian province of Alberta. Local producers have to decrease their production by 325’000 barrels or 8.7% a day starting next month until excess oil in storage is drawn down.
In another hand, the announcement from Qatar to leave the OPEC in January didn’t affect significantly the prices during this bullish period of time.
The OPEC meeting in Vienna will confirm if the bullish mood will continue or if the members do not agree on cuts and the prices will keep decreasing.
Oil price sink
WTI and Brent spot price
Leading up to 04 December 2018 data release from the American Petroleum Institute (API), crude oil prices were trading for the WTI at $53.12 (up $0.17 / +0.31%) and Brent crude at $62.06 (up $0.37 / +0.60%). This small increase is due to the recent announcement made by various OPEC players including Russia, giving hope that a production cut may be reached this weekend. The expected production cut could be as much as 1.4 million barrels per day.
China set to resume buying U.S crude oil after trade war truce
Following the weekend meeting between U.S president Donald Trump and Chinese President Xi Jinping, they have decided to make a truce on the trade war and pledged to immediately begin trade negotiations in view of possible deal within 90 days.
Chinese refiners are now willing to buy U.S crude oil by March 1 as the tentative halt to additional tariffs and lower oil prices are making U.S crude oil attractive again. Although U.S crude oil is not on China’s tariffs list, Chinese buyers have been staying away from U.S crude oil purchases since the summer.
It is important to remain that before the trade war escalated, the exportation of any crude oil to China were 510’000 barrels per day in June and 383’000 barrels per day in July.
COMPARISON WTI FUTURE CURVES FROM 30 MAY TO 30 NOVEMBER
As we can see in this graph, the future price path changed a lot from 30 May 2018 to 30 November 2018. But at the end, the difference of price between the price determined in 30 May 2018 is near of the last future contract indicated in 30 November 2018. The chart shows the price from 1 month to 80 Month in the future
Recommendation:
According to the political resolution about the production reduction from OPEC, the price in the next month will increase so we can buy now when the price is not high and sell after when the price will be high.
Appendix
https://oilprice.com/Energy/Crude-Oil/Shale-Drillers-May-Cut-Capex-As-Oil-Falls-To-50.html
https://oilprice.com/Latest-Energy-News/World-News/Oil-Prices-Sink-On-Surprise-Inventory-Build.html
https://www.erce.energy/graph/wti-futures-curve