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North American Crude Bulletin#1

Price movement recap

In the past four week we have seen a significant of USD 10 drop in oil prices with WTI crude around USD 63 per barrel in early November.

Prices reached a peak in October due to global shortage supply after announcement of US sanctions over Iran, who started on the 4th November.

Early October Saudi Arabia and Russia stated they will raise their production to compensate the shortfall in supply. U.S. Treasury yield increase also impact also impact oil price as it has added volatility across all markets including currencies and commodities.

Future prices: Prices agreed today for delivering a specified quantity of crude oil (light) at a specified time and place in the future.

before theUS midterms election in United States 02.11.2018

We can see that there is not a huge difference on the curve pace after the US midterms election. As we are still in a contango, we recommend to go on long term. Even if there is a little slight on the forward price, it is still profitable to store and sell in the future.

WTI spot and London Brent oil curve:

The exchange of crude knows a lot of variation. The variation can be influence by a lot of thing like a tweet from Donald Trump explaining that some commercial sanction will be proceed against a country from the OPEC.

This graph shows the price variation of the Brent crude and West Texas intermediate spot. We can see that the two curves are correlate and move in the same way. Even if the variation trend is clearly turned to a price decrease, the London Brent oil price remains higher than the WTI crude oil spot.

Crude oil price :

Oil prices are still dropping this week while the U.S crude oil production is increasing. A lot of crude oil actors due to the US production intensification are wondering about a global oversupply return. It is why some of the OPEC member are thinking that a production curbs may become necessary once again in order to prevent a glut.

References:

https://www.zonebourse.com/LONDON-BRENT-OIL-4948/graphiques-comparatif/

http://marketqview.com/forwardcurvechart.php?ID=23&TYPE=Price

https://www.eia.gov/dnav/pet/PET_PRI_SPT_S1_D.htm

http://www.theweek.co.uk/oil-price/95286/what-is-the-price-of-oil-and-which-way-will-it-go

https://oilprice.com/Energy/Crude-Oil/The-Real-Reason-For-The-Big-Sell-Off-In-Oil.html

 

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West African Crude Bulletin#1

October is not really a good month for crude oil prices. Oil prices got their biggest monthly drop in more than two years. For example, the WTI (West Texas Intermediate crude) dropped by 10.8 % in October. The West African grades prices for Qua Iboe and Nemba are also getting down.
Trafigura and Mercuria traders are assuming that Brent crude oil could rise to
$90 per barrel by the end of December and even pass $100 at the beginning of 2019, as markets tighten once U.S. sanctions against Iran are fully implemented in November.
OPEC as well as Russia are planning to raise their output to counter falling supply from Iran, although no decision was publically made yet. Some sources are saying that OPEC and other producers are willing to raise their output by 500,000 bpd when the worldwide production in June 2018 was around 92,6mbpd.
The oil prices are dropping down Following Trump’s tweets (see below) and intervention in the media, the price of crude oil has decreased significantly. Donald Trump was complaining that the oil prices are too high; moreover, he accused OPEC of pushing oil prices higher, and said that they should lower their prices. He actually expressed his discontent on twitter, after which, the oil prices dropped down and are still going down. He even threaten Middle East to withdraw US military resources if they do not want to cooperate. We assume that Trump’s pressure on OPEC is an attempt to make US crude oil more attractive. For instance, in July 2018 the US production was around 11mbpd and exportation around 1.8mbpd in the half of 2018. In 2018, the US has boosted their exports to Asia, Oceania such as China, South Korea and India by 80% compared to 2017.

To conclude, we think that the West African crude is not the only one which is suffering from Trump’s actions but the crude oil industry as a whole.

The forward curve below represents BRENT CRUDE OIL for year 2019. We chose the BRENT CRUDE as it is a benchmark for West African Crude oil. We can see that the price slightly decreases over time and hence tells us that this forward curve is in backwardation.

As we are in backwardation, we recommend to go short. There is no incentive to store because the price decrease over time. Storing crude would lead to carrying costs, which would not be economically viable.

Sources
Prices falling: https://mobile.reuters.com/article/amp/idUSKCN1N427C
Trump’s Tweets: https://twitter.com/?lang=fr
US export: https://www.hydrocarbonengineering.com/gasprocessing/24092018/eia-crude-oil-was-the-largest-us-petroleum-export-inthe-first-half-of-2018/
World production: https://www.forbes.com/sites/rrapier/2018/06/14/world-setsnew-oil-production-record/#4d589dcd752d
Trump’s pressure on OPEC : https://www.cnbc.com/2018/09/20/trump-wantsopec-to-keep-crude-low-it-cant-do-that-oil-expert-says.html
Brent backwardation: https://www.spglobal.com/platts/en/marketinsights/latest-news/oil/091218-brent-cfd-curve-moves-into-backwardationamid-bullish-crude-oil-outlook
Brent Futrue contract: https://www.theice.com/products/219/Brent-CrudeFutures/data?marketId=222467

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Russian Crude Oil Bulletin#1

Price movement 

Prices on the low despite US sanctions

 

Oil prices spiked at the beginning of October to a four-year peak, with Brent Crude at around US$85 per barrel on worries over stretched global supplies due to US sanctions on Iran.

However, following this spike, prices came close to post their biggest monthly percentage decline since July of 2016 as rising production and the potential slowdown in energy demand outweighed expectations.

An important fact has been whether other producers will compensate the diminished supply. OPEC, led by Saudi Arabia, and other leading producers, Russia, agreed in early summer to rise crude production after over a year of reduction. Comments in recent weeks by the Saudis regarding their potential maximum production—reaching up to 11 million barrels a day—have further weighed on prices of late.

Examples to illustrate the supply and demand dynamic of the commodity.

The main change we have seen recently is about the market sentiment, partially due to increasing concerns about demand as a result of the trade conflict between the U.S. and China. However, “real demand data remained robust in September,” Commerzbank said[1]. On the supply side, producing countries have also played an important role, with crude oil inventories in the U.S. having risen significantly for several weeks. Saudi Arabia, Russia and Libya boosted up their oil production in a noticeable manner in October. The result of these actions is positive as oil producers seems to be successful in offsetting the supply outages coming from Iran and Venezuela.

 

The OPEC nations are struggling to fully deliver on the oil production increase of 1 million bpd promised in June, Reuters reported, quoting an internal OPEC document.

In comparison to May, Saudi Arabia ramped up its production by 524,000 bpd but in the meantime Iranian, Venezuelan and Angolan production fell nevertheless, the non-OPEC partners in the deal have significantly increased their combined production. Last September, Russian oil production reached 11.36 million bpd. As a whole, the country’s production has increased by 450,000 bpd since May, but part of that increase was counterbalance by a decrease in Kazakhstan, Mexico, and Malaysia.

Recommendations to be short (sell) or long (buy) for the next 3 or 6 months.

“There’s a sense that the global economy goes into a bit of a slowdown and demand in 2019 isn’t quite as robust as it has been over the past couple years,” said Brian Kessens, energy asset manager at Tortoise in Leawood, Kansas. “We are still in more of a risk-off sentiment.”[2]
In addition to demand side concerns, all eyes are on the impact of Iran’s sanctions, which are expected to come into effect on Nov. 4, with many believing that Saudi Arabia and OPEC will do what is necessary to fill any shortage supply.

Following every bit of information stated previously, we recommend to be short on the commodity as we fully trust in OPEC and other producers capacity to fill the gaps and prevent shortage.

Sources

Beals, Myra P. Saefong, Rachel Koning. « Oil on Track for Biggest Monthly Loss in More than 2 Years ». MarketWatch. Consulté le 1 novembre 2018. https://www.marketwatch.com/story/crude-oil-tips-higher-but-is-about-to-log-a-9-october-retreat-2018-10-31.

« Brent Crude Futures | ICE ». Consulté le 1 novembre 2018. https://www.theice.com/products/219/Brent-Crude-Futures/data?marketId=222467.

« Brent Futures Curve ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/brent-futures-curve.

« Crude Weighed Down by Global Economic Slowdown Worries », 31 octobre 2018. https://www.bloomberg.com/news/articles/2018-10-31/oil-set-for-biggest-monthly-decline-since-2016-on-growth-fears.

« Global Oil Demand and Supply ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/global-oil-demand-and-supply.

« In sign of supply flexibility, Russia wields oil stocks to boost output ». Consulté le 1 novembre 2018. https://www.cnbc.com/2018/07/19/reuters-america-in-sign-of-supply-flexibility-russia-wields-oil-stocks-to-boost-output.html.

« OECD / US Oil Inventories ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/oecd-us-oil-inventories.

« OECD / US Oil Inventories ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/oecd-us-oil-inventories.

« Russia’s Oil Output Won’t Go Much Higher ». OilPrice.com. Consulté le 1 novembre 2018. https://oilprice.com/Energy/Crude-Oil/Russias-Oil-Output-Wont-Go-Much-Higher.html.

« Urals Oil Price Charts ». OilPrice.com. Consulté le 1 novembre 2018. https://oilprice.com/oil-price-charts.

[1]https://www.marketwatch.com/story/crude-oil-tips-higher-but-is-about-to-log-a-9-october-retreat-2018-10-31

[2]https://www.bloomberg.com/news/articles/2018-10-31/oil-set-for-biggest-monthly-decline-since-2016-on-growth-fears

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Gasoline and Diesel Bulletin n°3

 

Prices are per gallon

As we can see in the both latter graphs, the seasonality is the main explanation of the curve which remain the same every year. In fact, during the beginning of the year the gasoline market structure is systematically on contango, which indicates the traders to stock, and then comes the “harvest” which represents the moment when the gasoline supply is more important and makes decrease the price. We also found out that the quality of gasoline during the summer is more exigent and more expensive because it requires “carry a lower Reid Vapor Pressure (RVP), a common measure of the volatility of gasoline.” (Reuters, March 2018)

Prices are per metric ton

On contrary the diesel curve is not annually seasonal as the gasoline. If we compare the forward curves of the last year with this one in course, we can see that the 2017 curve it is on contango but this year the forward curve is on backwardation. In our opinion, it could be related to the declining diesel promotion as motor companies like Toyota, for example, which is planning to cut diesel vehicles production and European countries which are decreasing and taxing their diesel consumption and demand.

Diesel and Gasoline prices are directly correlated.

In this graph we can see how the gasoline prices are compounded and the evolution during the last five years. As we see the prices declined from 2015 and it is mainly due to the crude oil price that dramatically decreased because of the opposition on the market between the US with their shale oil and the OPEC with its conventional oil. As the crude oil price is correlated with the gasoline price, this latter has also been impacted.

Here are the gasoline and diesel price components in details

Gasoline and blockchain

On April 2, it was announced that China has successfully used blockchain technology for a shipment of gasoline from China to Singapore. Sinochem made a deal with other traders, including Louis Dreyfus and ING. It was the first time that blockchain applications have been applied to all participants in the commodity trading process. Sinochem stated that by using digital B/L and smart contracts, the financing and transaction costs have decreased from 20% to 30%.

Traders and Sonangol

Sonangol, the state owned company of OPEC member Angola, has put an end to the deal they had with Trafigura, who supplied them with diesel and gasoline. Although Angola is the second producer of crude oil (1.632m bbls per day) behind Nigeria (2.14m bbls per day), they only have one refinery, and must rely on suppliers to get refined products. Now, they entered into a deal with Total and Glencore, with the former delivering gasoline, and the latter Diesel.

Glencore forms energy

The company Glencore is forming an alliance with China’s Zhejiang Petroleum to trade energy products. The purpose of this alliance is to have a foot on the Chinese market to be able to import petroleum products and exchange them.

This association will be located in a free trade zone and will be located in Zhoushan Free Trade Zone in eastern Zhejiang province.

Each company will invest 1 billion yuan, (157 million dollars), with Zhejiang holding a 71 percent share and Glencore the remainder.

This alliance follows the alliance between China National Chemical Corp, known as ChemChina, and Swiss-based trader Mercuria expanded an equity tie-up, to be able to gain access to the largest markets for energy consumption. (China)

References

http://marketqview.com/forwardcurvechart.php?ID=83&TYPE=Price

https://www.platts.com/latest-news/oil/london/sonangol-ditches-trafigura-as-main-supplier-of-26915612

https://www.opengovasia.com/articles/china-completes-the-worlds-first-gasoline-shipment-using-blockchain-technology

https://www.eia.gov/petroleum/gasdiesel/

https://www.eia.gov/outlooks/steo/report/us_oil.php

http://marketqview.com/forwardcurvechart.php?ID=39&TYPE=Price

https://www.eia.gov/todayinenergy/detail.php?id=35752