Oil in Global Economy Series: Key oil market updates

Monday, December 31, 2018 1:50 PM UTC

While the oil market continues to focus on supply/demand fundamentals, these are some key updates that you need to keep a tab on,

U.S. oil rig count: The production last week was 11.7 million barrels per day, which is record production. Despite fewer rigs operating compared to 2014/15, the production efficiency has pushed the overall production higher. As of latest report, the numbers of operating rigs rose to 885, just shy of the recent peak of 887.
Venezuela crisis: Crisis continues in Venezuela. According to the latest report, inflation has reached an all-time peak of one million percent. OPEC report suggests Venezuela’s production declined to a fresh low of 1.137 million barrels per day in November.
Iran: Uncertainty surrounds Iran’s oil exports as the U.S. sanctions have kicked in from 6th November. The United States has promised harshest of punishments to those who violate the sanctions including payment system SWIFT. However, the U.S. has allowed a 180-day waiver for 8 counties, including China, India, and Korea. OPEC surveys suggest that Iran’s oil production is coming down. There are reports that Japan would soon stop buying its crude oil from Iran. The latest report from Reuters suggests that Iran’s production is declining fast. In November, it was 2.85 million barrels per day. Bloomberg survey also showed production below 3 million barrels per day for the first time since the Iran nuclear agreement. Currently, the European Union is working on a mechanism that would help Iran to bypass U.S. sanctions. According to OPEC, Iran’s production was 2.95 million barrels per day. Iran oil supplies will be one of the key determinant of prices going ahead. The U.S. recently extended the 180-day waiver for Iraq by another 90 days. Iran’s production is expected to decline further.
OPEC & Russia & Saudi Arabia: Saudi Arabia led OPEC and Russia led non-OPEC countries reached an agreement on Friday to reduce global oil supplies by 1.2 million barrels per day. OPEC would bear 0.8 million cuts, while Russian led non-OPEC countries would bear the rest. Three countries have received exemptions from the cut; Libya, Iran, and Venezuela. All countries are likely to reduce 3 percent production. The new production cuts would kick from January next year.
Syria/Russia/Iran/U.S.: The United States has sanctioned several Iranian and Russian individuals as well as some entities over supplying oil to the Syrian government, which according to the United States finally reach the hands of terrorists. Canada recently arrested Huawei’s chief financial officer at the request of the United States for violating U.S. sanctions against Iran.
Hedge funds: Despite OPEC deal. Oil price is struggling as hedge funds are steadily reducing positions. According to Commitment of Traders’ report (CoT), by 11th November Speculators reduced long positions for the 11th Consecutive week and for the 21st time in 25 weeks, and by 20,640 contracts, which brought the net positions to +309.5K contracts. Speculative long positions reached a record high of 739.1K contracts in February this year and have been declining since. However, last to last week’s report showed that speculators have increased net long positions for the first time in 12 weeks.
U.S. oil production: U.S. oil production is likely to be one of the most influential factors for oil prices in the years to come. The International Energy Agency (IEA) assessed that the U.S. oil production would near the combined production of Russia and Saudi Arabia by 2025. Despite the recent dip in prices, both U.S. production and operating rigs are stabilizing at current high levels.