WTI $39.31 +$1.07, Brent $43.21 +52c, Diff $3.90 -55c, NG $2.68 +3c
Oil price
Crude prices rallied a touch yesterday with a variety of reasons being proffered, the weak dollar as the Jackson Hole meeting starts today to decide on when interest rates are to rise seemed as good a start as any. If you believe that the dollar strength has run its course for the time being we may be near the bottom. Elsewhere the reports of the Whiting refinery coming back onstream earlier than expected would have boosted WTI and demand for local crude. The big news of course came by way of the API inventory stats, analysts had been going for a build of around 1m barrels so we shouldn’t have been surprised to see a draw of 7.3m barrels, watch out for tonight’s EIA numbers to frank the form.
I have been taking a look at what might change in the oil market now that we are back down at the lows, this week’s news from China has potentially changed things if you believe that their economy is faltering, a view I don't necessarily share. However what it might do is to precipitate some change in policy from Opec and give the cartel a chance to ‘suspend’ its latest drive for market share. There is no doubt that even the Saudis are feeling the pinch as is reported in a number of papers at the moment. To save face I can see that some sort of deal may be cobbled together, it would need to be wrapped appropriately of course but Opec rescues the world sounds quite nice.
The fundamentals remain weak, current strategy has been premised on someone blinking first, some people thought it would be the US shale operatives but it was never going to be them, particularly when costs fell by up to 40% and banks preferred to roll with the debts rather than put them into Chapter 11. Worries about overproduction from the Opec heavyweights continue as they fight to dominate the cartel before Iran returns to the fray, nobody is backing off at the moment it seems. Last week the Saudi Foreign Minister visited Moscow and whilst discussions were of a general nature they definitely revolved around oil. Conventional wisdom states that Russia cannot afford to cut production, but as a leading investment manager suggested to me recently, if by cutting output modestly, total revenue…
