Oil benchmark prices fell more than $1/bbl on New York and London futures markets Dec. 14, settling lower for the week, which analysts attributed to a stronger US dollar combined with ongoing oil investors’ worries about US stock market volatility.
Because oil trades on most markets worldwide in US dollars, a stronger dollar makes oil more expensive for buyers starting out with other currencies.
Separately, US natural gas futures dropped about 15% for the week ended Dec. 14—the largest such loss in nearly 3 years. Warmer weather expectations across most of the nation likely indicate less near-term gas demand for heating.
Bloomberg reported Saudi Arabia on Dec. 13 told US refiners to prepare for fewer Saudi crude oil cargoes in January 2019 compared with late 2018. The Organization of Petroleum Exporting Countries will begin production cuts in January that it announced at a Dec. 7 meeting (OGJ Online, Dec. 7, 2018).
Cartel members agreed to cut production by 800,000 b/d while some non-OPEC members, led by Russia, agreed to cut 400,000 b/d.
In addition to OPEC’s cuts, the International Energy Agency estimates combined production losses from Iran and Venezuela could reach 900,000 b/d by the second quarter of 2019.
Iran faces US sanctions on oil exports while Venezuela’s economy is struggling. Iran, Venezuela, and Libya were exempted from the OPEC production cuts. Libya’s National Oil Corp. recently declared force majeure on 400,000 b/d in exports from El Sharara oil field, which was attacked by a militia group earlier this month.
Oil prices rose in early Dec. 17 trading, supported by a weakening US dollar and by a decline in the number of US rigs drilling for oil for the week ended Dec. 14.
Baker Hughes reported the US rig count at 1,071 rigs, down 4 from a week ago. The count is up 141 units from the 930 rigs working this time a year ago (OGJ Online, Dec. 14, 2018).
Michael Cohen, Barclays Research analyst, believes Brent and light, sweet crude oil prices are poised to rebound in the first half of 2019.
Bayclays set its 2019 forecast at $72/bbl for Brent and $65/bbl for US light, sweet crude. Analysts noted the reduction in Saudi exports will be large enough to strengthen the physical market during the first quarter 2019.
US officials in November fully imposed US sanctions against Iran for 180 days only, scheduled to be readjusted by early May.
“If prices stay in the low $60s, the [US President Donald] Trump administration would have even more leeway not to grant waivers,” Cohen said. “In our view, only if prices spike above the $80 level would the US not enforce continued significant reductions in Iran’s ability to export.”
He noted that Iran continues to move unsold cargoes to China in tankers leased by the National Iranian Oil Co., using this flexibility to effectively evade sanctions.
Energy prices
The January light, sweet crude contract on the New York Mercantile Exchange dropped $1.38 to close at $51.20/bbl. The February contract dropped $1.36 to $51.47/bbl.
Natural gas futures for January declined 29.7¢ to close at a rounded $3.83/MMbtu on Dec. 14. The steep drop put the front-month at its lowest point since reaching $3.788/MMbtu November 12.
Ultralow-sulfur diesel for January dropped 3¢ to a rounded $1.85/gal. The NYMEX reformulated gasoline blendstock for January decreased 4¢ to a rounded $1.43/gal.
Brent crude oil for February dropped $1.17 to $60.28/bbl on London’s International Commodity Exchange. The March contract dropped $1.19 to $60.40. The gas oil contract for December was $556.25/tonne, down $1.25.
OPEC’s basket of crudes for Dec. 14 averaged $59.07, up 40¢ from the previous day.
Contact Paula Dittrick at [email protected]
