Price movement recap
Since October, BRENT and WAF crude oil prices continue to decrease significantly and we can see on the graph above that they are still correlated.
The reason behind this great decrease is an oversupply of crude oil in the market, in general. There are several causes for this decrease:
- The market reaction in regards to the US sanctions taken by M. Trump against Iran.
- Then, the US issued sanction waivers for eight countries importing Iranian crude
In order to react to this situation, OPEC countries decided to cut/reduce oil supply for next year. As a result, oil prices will rise and stabilize over time.
If we compare the previous Forward curve to the new one from this week, we can notice that the price decreased from around 8$/per barrel but we can see that future prices are in containgo resulting from the OPEC annoucement.
So it is better to store the crude since carrying costs are supported by a higher price. However afterwards, the future price decreases a little bit (from July 19) so it is better to sell (small backwardation).
Supply and demand
Freight rates for tankers have increased sharply since the beginning of October for Nigeria and Angola. Therefore the offer for WAF crude stays quite pricey for buyers and the high freight rates weigh somehow on Asian demand. The general buying interest, especially to Asia, had slowed due to rising freight rates, even though some spot cargoes were traded at the end of October. The daily cost of shipping Angolan crude to China has jumped to above $50,000, from closer to $42,000 on about a few days. Finally refiners have appropriated vessels in the Middle East to secure alternatives to their usual deliveries of Iranian crude which fall under US sanctions from 4th of November.
“Freight is ridiculously expensive. It’s become a $1 a barrel more expensive going east, which puts the breaks on things,” one trader said.” (Reuters)
Total exports from main WAF crude oil producers will reach 3.86 million barrels per day (bpd) in December, according to 3.88 million bpd in November, led by declines in Angolan output. Nevertheless China’s crude oil imports increased to an all-time high of 9.61 million bpd in October. (32 percent increase on the same month last year)
Sources:
https://www.erce.energy/graph/brent-futures-curve
https://www.theweek.co.uk/oil-price/95286/what-is-the-price-of-oil-and-which-way-will-it-go