World Oil Prices Jump Following OPEC Meeting

Jon Howard
September 27, 2017

"The assessments will reflect the price prevailing during the close of the market in Asia, taking into account the rise or fall in the movement of cash WTI from the time of the assessment at the USA market close at 2:15 pm Eastern Standard Time, until the Asian close", Platts said.

That's the story, but it isn't the whole picture.

Earlier the country announced plans to join the crude output cut deal if the production stabilizes at the level of 1.8 mln barrels per day. They are not yet out of the woods.

"A dip in Iraqi crude exports could inject some fresh impetus into the slow-moving rebalancing process, much to the delight of its OPEC peers", he added.

The wellhead was uncapped, and oil gushed higher overnight with Brent rising almost four percent and WTI three percent.

But recent comments from Iraq's oil minister suggest that there are other ideas at play - perhaps an extension through the end of 2018, or maybe even deeper production cuts.

One thing that sets this year's strong economic performance apart is that it is touching economies everywhere.

That leaves Asia as the clearing house for USA crude.

The biggest unknown is the future of USA production, which is expected to rise this year and next. US jet fuel inventories fell below their five-year average in July and gasoline is headed in the same direction.

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But so far rising production from the U.S., Nigeria and Libya has undermined the cartel's efforts to curb excess supply.

But we need to be careful, because there are short-term factors whose influence we neglect at our peril. And the USA refinery hiccup should prove temporary.

He also threatened to cut a vital Kurdish oil pipeline and stop vehicles crossing Turkey's border.

Iran expects to maintain overall crude and condensate exports at around 2.6 million bpd for the rest of 2017, a senior official from the country's state oil company said. The focus on over-supply will switch to worries about impending shortage. The producers have agreed to a cut of 1.8 million barrels per day since the beginning of 2017. That led the IEA to upwardly revise its growth estimate for the full year.

Fund positioning in gasoline, heating oil and gasoil now looks very stretched, with the ratio of long to short positions near multi-year highs in each case. "We travel a lot here and prices going higher are sometimes a huge cost for us", said Rahul Rajeev, an Indian student.

On the whole, fundamentals are now slowly turning supportive for oil prices as supply has started to flatten at a time when demand remains robust.

Then there is shale. But Hurricane Harvey's strike on Texas last month was a game changer as flooding from the storm shut down a quarter of the USA oil refining capacity of nearly 18 million bpd, sparking huge drawdowns in fuel inventories and prompting refiners to process as much crude as they could on their return. As of now, OPEC does not appear to be in agreement with that view, but we'll find out more at the group's official meeting in November. The Russian energy minister said OPEC did not agree on a freeze beyond March 2018, making it a key date for the oil industry.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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