Oil: Peaked out or not? I think not...

Friday, Jun 01 2018 by

On Oil, it has been fashionable to be long of the black stuff given falling oil production in Venezuela, plus the resumption of US sanctions on Iran, both two important OPEC producers. 

As global crude oil inventories have fallen back to 5-year seasonal averages, thanks in large part to good quota compliance from OPEC+ (including Russia), the glut of crude oil on the world market seems to have been cleared. 

1. Global oil inventory glut seems to have been cleared5b115240515b7chart2.png

Source; EIA

As a result, Brent crude oil (CO1 in the chart below) has leapt to a high of $80/barrel, before easing back to around $77 at time of writing, with West Texas Intermediate (CL1) opening up a spread of over $10/barrel - the highest such spread in over 3 years.

2. Brent and WTI crude oil prices have rallied hard


The trigger for the pullback in Brent from $80 a few days ago was the news that Russia and Saudi Arabia were considering loosening their quotas on oil production for H2 of this year, given the resounding success of the OPEC+ quotas thus far. But in the end, they seem to have opted to maintain quotas, as least for now. 

This also triggered some profit-taking in oil positioning by speculators, given the extraordinary long positioning of non-commercial players (i,.e. investors and hedge funds) in oil and gasoline futures and options.

3. Speculators start to sell out of their very long oil positions


Source: CFTC

Since mid-2017, the European Oil & Gas sector (white line in chart below; led by Royal Dutch Shell (LON:RDSA) and BP (LON:BP.) ) has outperformed the broad European stock market (orange line) by over 18%, reflecting this strong upside oil market momentum.

4. SXEP EU Oil & Gas sector leading the way in performance


So what now? Continued correction, or new oil highs?

Global oil demand should continue to grow steadily, thanks to decent economic momentum in the US, EU and China. So the question is more about supply, in my view. 

I suspect from much reading around this topic that spare capacity in the OPEC+ producers is somewhat exaggerated,…

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My opinions only, not investment recommendations: Please Do Your Own Research

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BP p.l.c. is an integrated oil and gas company. The Company owns an interest in OJSC Oil Company Rosneft (Rosneft), an oil and gas company. The Company's segments include Upstream, Downstream, Rosneft, and Other businesses and corporate. The Upstream segment is engaged in oil and natural gas exploration, field development and production, as well as midstream transportation, storage and processing. The Downstream segment has global manufacturing and marketing operations. The Rosneft segment has a resource base of hydrocarbons onshore and offshore. The Other businesses and corporate segment comprises the biofuels and wind businesses, shipping and treasury functions, and corporate activities around the world. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants to keep engines moving and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging. more »

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Rockhopper Exploration plc is an oil and gas exploration and production company. The Company is engaged in the exploration and exploitation of its oil and gas acreage. The Company operates through three segments, which include the oil and gas exploration activities in the geographical regions of the Falkland Islands, and the Greater Mediterranean region, as well as its corporate activities centered in the United Kingdom. The Company holds interests in North Falkland Basin and the Greater Mediterranean region. The Company's areas of operations include Falkland Islands, which is located in the South Atlantic Ocean, over 8,000 miles from the United Kingdom and approximately 300 miles from South America. Its licenses in Falkland Islands include Sea Lion phase 1 (PL032), Sea Lion phase 2 (PL032/PL004) and Phase 3-Isobel-Elaine (PL004). The Company's interests in Mediterranean region include Guendalina, Ombrina Mare and Monte Grosso in Italy; Area 3 in Malta, and Block 9 in Croatia. more »

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Faroe Petroleum plc is an oil and gas company. The Company is focused on exploration, appraisal and production opportunities in Norway and the United Kingdom. Its portfolio consists of approximately 60 exploration, appraisal, development and production licenses in the West of Shetland, the North Sea, Norwegian Sea, Barents Sea and the Celtic Sea. Its Aerosmith - PL644/PL644 B is located approximately 20 kilometers from the Morvin and Smorbukk Fields in the prolific Halten Terrace hydrocarbon province of the Norwegian Sea. The Bister Prospect is located in the Norwegian Sea in License PL348 C, which also contains the producing Hyme Field and the Snilehorn discovery, which are adjacent to the producing Njord Field. The Brage Field is located east of Oseberg in the northern part of the North Sea. The Butch Main discovery is situated in approximately 65 meters water depth in the Southern North Sea. The Gullaxy Prospect is situated to the north of the Butch discovery in the Central Graben. more »

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  Is LON:BP. fundamentally strong or weak? Find out More »

2 Posts on this Thread show/hide all

willhampson 1st Jun '18 1 of 2

Nicely written article - thank you! Of course it's a guess, but my view is that it has unlikely peaked for the geopolitical reasons you highlight. Further, it is very unlikely that the Saudis will let it dip too much until such time as Aramco is finally listed; my suspicion is that they would hope to finally IPO in even more favourable prices than right now. I also have a few positions in producers (TRIN, DGOC and SDX) and funded explorers with confirmed discoveries (HUR and JOG).

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Taff6 5th Jun '18 2 of 2

Thanks Ed for your insightful article, which continues one of the themes from another article you typed https://www.stockopedia.com/co...
This article is somewhat dated, http://www.marketoracle.co.uk/...
but little has changed from what I can see, as a quick google search on "UK energy crisis” will reveal.
The energy crisis this country faces may give huge opportunities to investors in the right shares I suspect.
I was interested if anyone had any views on IGas Energy (LON:IGAS), fracking and the huge estimated fracking resource we supposedly have in this country?
It seems to be off the radar at present, nevertheless if energy prices continue to rise fracking may again jump to the fore.
IGas Energy (LON:IGAS) share chart appears to be making a huge u shaped bottom with accelerating volume


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