OIL

Crude oil, or petroleum, and its refined components, collectively termed petrochemicals, are crucial resources in the modern economy. Crude oil originates from ancient fossilized organic materials, such as zooplankton and algae, which geochemical processes convert into oil. Because it is obtained in the vicinity of rocks, underground traps, and sands. Mineral oil also refers to several specific distillates of crude oil.

An Information and statistical sources:

US Energy Information Administration (EIA) and The American Petroleum Institute (API)   

An Oil Slides After API Reports Huge Crude Build

Oct 10, 2018

The American Petroleum Institute (API) reported a major build of 9.75 million barrels of United States crude oil inventories for the week ending October 5, compared to analyst expectations that this week would see a much smaller build in crude oil inventories of 2.62 million barrels. The build is the largest build since February 2017, according to Zerohedge..

Last week, the American Petroleum Institute (API) reported a build of 907,000 barrels of crude oil.

The API reported a build in gasoline inventories as well for week ending October 5 in the amount of 42,000 barrels in gasoline inventories for the week.

Oil prices were down in afternoon trading prior to the release of the API data on inventories, and not just by a hair. At 4:00pm EDT, WTI was trading down 2.77% (-$2.08) at $72.88, a more than $2 slip from this time last week. WTI is still trading nearly $3 per barrel higher than three weeks ago as the markets come to terms with the expected loss of supply from Iran and the declining oil production in Venezuela.

The Brent crude benchmark saw similar activity on Wednesday, trading down 2.68% ( -$2.28 ) at $82.72—also roughly $2 under last week.

Inventories at the Cushing, Oklahoma, site increased this week by 2.3 million barrels, after last week saw the largest build of Cushing inventory since March 2018.

By 4:43pm EDT, WTI was trading down on the day at $72.82 and Brent was trading down at $82.73.

U.S. Oil Companies Face $240 Billion Debt Mountain

Oct 10, 2018

U.S. oil producers are facing debt of US$240 billion maturing until 2023, of which some 15 percent will be rated with the lowest rating of Caa, Moody’s said in a new report quoted by Kallanish Energy.

The good news is that the majority of these bonds are rated B or more but the bad news is that the portion of low-rating debt will rise from 6 percent next year to 15 percent in 2020 and stay at this level over the following three years.

Of the total debt maturing by 2023, US$31 billion has the lowest rating, Moody’s VP Paresh Chari said in the report. Another US$23-24 billion of debt is rated B through Baa. In 2019, the analyst said, only a small portion of the low-rating debt will need to be repaid but its share of the total maturing debt in 2020 will jump to 35 percent in 2020, then declining to about 20 percent for each of the three years to 2023.

Unsurprisingly, exploration and production companies account for the bulk of the total US$240 billion maturing by 2023, at US$93 billion.

Debt levels among U.S. E&Ps has had some analysts and industry observers worried in the past few years despite the recent recovery in oil prices. During the downturn more than 140 companies filed for bankruptcy, according to data from Haynes & Boone, cited by the Houston Chronicle, with their combined debt reaching US$90 billion.

Now things are looking up with oil recovering from less than US$30 to over US$70 a barrel but the uncertainty remains and some industry observers worry that despite cost improvements, high debt levels could yet play a bad joke on exploration and production companies that keep borrowing to boost production and benefit from the higher prices.

Here’s how a Saudi financial services firm, Al Rajhi,  explains  it to energy historian Ellen R. Wald: “Given the higher decline rate from shale wells and their relatively short life as compared to conventional wells, the shale producers need to accelerate capex spending to maintain production rates. Accordingly, the rise in capital spending puts the producers deeper in debt, reflecting in rising total debt for these companies amid rising interest rates.”

While one may well argue any Saudi analysis of U.S. shale oil will be biased, the fast decline-rate of frack wells is a fact and so is the debt. It remains to be seen how the E&Ps handle the situation.

EIA: Market Tightens As Outages From Iran, Venezuela Pile Up

Oct 11, 2018

Iran’s crude oil production fell by more than 400,000 per day from May 2018 to September, reaching an average of just 3.4 million barrels per day last month, according to the Energy Information Administration’s  Short Term Energy Outlook published on Wednesday

The EIA’s report, delayed one day due to the Columbus Day holiday, pegs OPEC’s crude oil supply at 32.46 million barrels per day on average in 2018—down from 32.68 bpd in 2017. For all of 2019, the EIA forecast a dip in OPEC supplies to 32.14 bpd on average..

Despite declining production from Iran and Venezuela, OPEC managed to lift production for Q3 from 32.31 bpd in Q2 to 32.52 bpd in Q3, according to the report.

But while OPEC as a whole has managed to increase production despite significant losses of two of its members, oil prices have stayed stubbornly high as the market questions whether OPEC can continue to eek out oil in sufficient quantity to offset what is sure to be growing production declines in Iran and Venezuela.

The EIA now estimates that OPEC’s spare production capacity is just 1.4 million barrels per day, “the lowest level since December 2016 when global inventory levels were much higher.”

It is precisely this combination of continual production declines, shrinking spare capacity, and dwindling inventory that has led to higher oil prices, with the EIA estimating that spot prices for Brent crude will average $81 per barrel in Q4 2018—in sharp contrast to EIA’s estimate in September’s STEO of $76 per barrel.

Still, the EIA is expecting supply and demand to be “nearly balanced” in 2019, which, the STEO says, shall contribute to downward oil price pressures. Further downward price pressures will be realized when transportation bottlenecks in the Permian are addressed—which is expected to be achieved in H2 2019.

Oil Price Losses Mount After API Reports Huge Inventory Build-up

Oct 23, 2018

The American Petroleum Institute (API) reported a huge build of 9.88 million barrels of United States crude oil inventories for the week ending October 19, compared to analyst expectations that this week would see a hefty build in crude oil inventories of 3.694 million barrels.

Last week, the American Petroleum Institute (API) reported a surprise draw in crude oil inventories of 2.13 million barrels for the week. One day later, the Energy Information Administration reported a build instead, of 6.5 million barrels.

The API reported a draw in gasoline inventories as well for week ending October 19 in the amount of 2.8 million barrels. Analysts had predicted a draw of 1.878 million barrels for the week.

Oil prices were down sharply in afternoon trading prior to the release of the API data on inventories as the stock market lost ground earlier in the day. While the Dow Jones regained some ground in late afternoon trading, oil prices continued their decline.

At 4:05pm EDT, WTI was trading down a staggering 4.50% (-$3.12.) at $66.24—a more than $5 loss in a week. The Brent crude benchmark was trading down 4.41% (-$3.52 .) at $76.31, down from $81.30 a week ago at this time.

Inventories at the Cushing, Oklahoma site increased this week by 971,000 barrels.

US crude oil production as estimated by the Energy Information Administration showed a production decline for the week ending October 12, falling to 10.9 million bpd—300,000 bpd off last week’s record production of 11.2 million bpd.

Distillate inventories were down this week by 2.4 million barrels, compared to a larger expected draw of 1.927 million barrels.

The U.S. Energy Information Administration report on crude oil inventories is due to be released on Wednesday at 10:30a.m. EDT.

By 4:38pm EDT, WTI was trading down at $66.29 and Brent was trading down at $76.38.

Oil price chart:

Kurdistan Upgrades Oil Pipeline Export Capacity To 1 Million Bpd

Iraq’s semi-autonomous region of Kurdistan has recently upgraded its oil export pipeline, boosting its capacity to 1 million bpd from 700,000 bpd, to accommodate future production growth from the region, the Ministry of Natural Resources of the Kurdistan Regional Government said over the weekend.

“This extra capacity will accommodate future production growth from KRG producing fields, and can also be used by the federal government to export the currently stranded oil in Kirkuk and surrounding areas,” KRG’s ministry said in a statement.

Around 300,000 bpd of crude oil previously pumped and exported in the Kirkuk province to the Turkish port of Ceyhan have been shut in since the Iraqi federal government moved in October last year to take control over the oil fields in Kirkuk from Kurdish forces.

Thamer Ghadhban, the new Iraqi oil minister, said last week that Iraq’s federal government “will work to overcome all obstacles” regarding the resumption of oil exports through the Kurdistan region.

The KRG, for its part, currently exports more than 400,000 bpd of crude oil through its pipeline, its natural resources ministry said.

Oil Prices Inch Higher Despite Crude Build-up

As of Oct 30, 2018

The American Petroleum Institute (API) reported yet another crude oil inventory build this week, this time of 5.69 million barrels for the week ending October 26. The build was the fourth in as many weeks as reported by the API. The report was largely in line with analyst expectations that this week would see another substantial build in crude oil inventories of  4.110 million barrels.

The string of builds weighed heavily on prices, which were already depressed after IEA warned on Tuesday that the longer trend of higher oil prices would start to dent demand in key oil consuming markets such as India and Indonesia.

According to API data, the six-week running tally of crude oil inventory gains equals 27 million barrels.

The API reported a draw in gasoline inventories as well for week ending October 26 in the amount of 3.5 million barrels. Analysts had predicted a draw of 2.137 million barrels for the week.

Oil prices were down in afternoon trading prior to the release of the API data on inventories as traders feared additional inventory increases.

At 1:58 pm EDT, WTI was trading down 0.88% (-$0.59) at $66.45—nearly flat week on week. The Brent crude benchmark was trading down 1.51% (-$1.17) at $76.20, also flat on the week.

US crude oil production as estimated by the Energy Information Administration showed no change in production for the week ending October 19 at 10.9 million bpd—300,000 bpd off the highest ever US production of 11.2 million bpd reached just weeks ago.

Distillate inventories were down this week by 3.1 million barrels, compared to a smaller expected draw of 1.369 million bpd.

The U.S. Energy Information Administration report on crude oil inventories is due to be released on Wednesday at 10:30a.m. EDT.

The draw in gasoline and distillate inventories this week is unlikely to take the sting out of such high crude oil and Cushing inventories, and by 4:40pm EDT, WTI was trading down at $66.19 and Brent was trading down at $76.04.

High Oil Prices Are Already Destroying Demand

 Oct 30, 2018

Crude oil prices have gone up high enough to begin hurting demand for the commodity, the chief of the International Energy Agency, Fatih Birol, said as quoted  by Reuters on the sidelines of an industry event in Singapore.

Birol noted the adverse effect of higher oil prices on large emerging economies in particular, including India and Indonesia, saying, “Many countries’ current account deficits have been affected by high oil prices.”

The negative effect has been compounded by a slide in local currencies as well, a development that can also be at least partially traced back to higher oil prices and their effect on current account deficits.

The good news, at least for consumer nations, is that this situation cannot continue indefinitely and with dampened demand prices should go down as well at some point.

“There are two downward pressures on global oil demand growth,” Birol told Reuters. “One is high oil prices, and in many countries they’re directly related to consumer prices. The second one is global economic growth momentum slowing down.”

In fact, concern about global economic growth—driven by emerging economies, no less—has weighed on prices in recent days. It has combined with other factors such as a stock market decline and rising crude oil supply to push Brent and WTI down, although despite this decline both benchmarks remain with cumulative gains of more than 10 percent since the start of the year.

Mixed signals from Riyadh concerning production plans have also enhanced price volatility, but it seems the message that prevailed is that the Kingdom will pump as much crude as it can to offset loss of Iranian supply, which has in turn sparked worry about supply. Last week, Khalid al-Falih said the market could swing into a surplus next year, which may have contributed to the worry.

There’s No Strong Fundamental Reason For Oil’s Decline

Nov 03, 2018

The oil markets continue to be gripped with the continuation of violent selling in the last week, displaying what I can only describe as a ‘traditional’ puking

Notice, over the last 5 weeks how consistent the pattern has been: a long downwards session candlestick, achieved under normally heavy volume, followed by 2-4 sessions of slower, digestive, lesser volume sessions that might attempt at retracement higher, but ultimately fail with another violent down-move under heavy volume.

This type of action is classic – and yes, it is definitely trend reversing, at least in the medium term. But more than that, it indicates just how convincingly hedge funds and other speculative accounts have been exiting longs, and in fact, begun establishing momentum shorts in the futures markets. This ‘two small steps up, one giant leap down’ is precisely indicative of this lone speculative trading pattern affecting the oil markets at large.

During these moments, you can take the fundamentals – no matter what they might say to you – and toss them. Until you see stability in hedge fund positions, that selling pressure from longs reversing to shorts will override everything.

This financial pressure on oil has been helped along in every case by widespread media bashing of the oil complex. For example, several articles have delivered bearish headlines of OPEC reducing their demand forecast for 2019

China To Boost Shale Oil, Gas Production

Nov 06, 2018

China’s biggest energy producers are tapping more tight oil and gas wells, aiming to increase domestic oil and natural gas production at the world’s largest crude oil importer and what will soon be the world’s top natural gas importer.

As part of a government push to boost domestic energy supply, China National Petroleum Corporation (CNPC) and Sinopec are raising investments to increase local oil and gas production and are accelerating drilling at tight oil and gas formations in western China, the companies have recently announced.

Oil demand continues to grow in China, while domestic production has been declining in recent years. This has led to additional—and costly—imports, making China the world’s largest crude oil importer. For natural gas, a similar trend is apparent. A government drive to have millions of residents switch to natural gas from coal has resulted in China surpassing South Korea last year to become the world’s second-largest liquefied natural gas (LNG) importer behind Japan.

Domestic oil production, on the other hand, has been falling due to the depletion of mature conventional oil fields. Desperate to meet this need, Chinese President Xi Jinping has ordered the state-held companies to boost domestic production of oil and gas, and firms are starting to follow the policy.

CNPC’s drilling cycle at one of its biggest oil discoveries in recent years, the Mahu field, has dropped 40 percent from last year, Reuters quoted the company’s newspaper as saying on Monday. The drilling cycle decline implies a faster rate in completion of the wells, according to Reuters.

China’s total crude oil production January-September, however, dropped by 1.9 percent compared to the same period a year earlier, according to data from the National Bureau of Statistics of China. In September, crude oil production in China fell 2.4 percent compared to September 2017.

Chinese companies are trying to increase domestic oil and natural gas production—and are succeeding in gas output—but the pace of China’s oil and gas demand growth means that imports will play even more of a leading role in its future energy demand and in the global oil and gas markets.

U.S. And OPEC Flood Oil Market Ahead Of Midterms

Nov 01, 2018

OPEC and the U.S. are together adding enormous volumes of new supply, which together have softened the oil market.

In October, OPEC hiked oil production to the highest level since 2016, back before the oil production cuts went into effect, according to a recent Reuters survey. The higher output, led by Saudi Arabia and the UAE, come just as Iranian oil is going offline. Also, Libya saw a sharp rebound in production, although the country is not part of the OPEC+ production cuts.

The 15 countries in OPEC produced an average 33.31 million barrels per day in October, the highest since December 2016. That was also up 390,000 bpd from September. “Oil producers appear to be successfully offsetting the supply outages from Iran and Venezuela,” said Carsten Fritsch of Commerzbank.

Russia, which is not part of OPEC but part of the OPEC+ coalition, continues to produce at post-Soviet record highs.

Iran lost 100,000 bpd in October, due to buyers cutting back as U.S. sanctions near, but the losses were more modest than many analysts had expected. In fact, despite the hardline rhetoric from Washington, the U.S. is poised to grant waivers to several countries that are unable to cut their imports of Iranian oil to zero.

That was largely predictable. Top importers of Iranian oil, including India, China and Turkey, could not slash their purchases to zero without incurring a significant economic cost. The U.S. pressed these countries, but ultimately had to back down. “We want to achieve maximum pressure but we don’t want to harm friends and allies either,” U.S. national security adviser John Bolton said on Wednesday. He recognized that some “may not be able to go all the way, all the way to zero immediately.” The admission is notable since Bolton is widely known as one of the most extreme hardliners when it comes to Iran.

The waivers, along with efforts by Iran to work around the U.S. sanctions regime, means that the export losses could plateau. “It is doubtful whether Iranian oil exports will fall much further from their current level, however. After all, there are reports that India is to be granted an exemption by the US to buy Iranian oil. Without such exemptions, buyers of Iranian oil will risk US sanctions from next Monday,” Commerzbank said in a note.

Meanwhile, even as OPEC is boosting production, the U.S. is also adding supply at an impressive rate. The EIA just released U.S. production levels for August, revealing a massive month-on-month increase. The agency estimates that the U.S. produced a whopping 11.346 mb/d in August, an increase of 416,000 bpd from a month earlier. That level makes the U.S. the largest oil producer in the world, just a hair above Russia.

At 11.346 mb/d, the U.S. added 2.1 mb/d compared to August 2017, the largest increase over a 12-month period on record.

But even with OPEC production at a two-year high and U.S. production surging at a torrid pace, the oil market is not necessarily on the verge of plunging into a new downturn. Despite the flood of new supply, the “surge does not seem to have overloaded the market,” according to Standard Chartered. Crude oil inventories have climbed significantly, but part of the reason for the increase is that refinery utilization is way down. Refineries tend to go into maintenance after the summer, but Standard Chartered said this has been a “longer-than-usual maintenance season.” That has led to inventory increases, but still, inventories are right in the middle of the five-year average. That also included a scheduled release of oil from the strategic petroleum reserve, a volume that was previously legislated by Congress.

Nevertheless, market sentiment has soured, at least compared to before. Investors have sold off bullish bets on oil futures and the futures curve has flipped from backwardation into contango, a sign of increased bearishness.

“Given these (output) numbers, with Russia pumping hard and the United States and OPEC as well, and we are not really seeing a pickup in demand for another month ... it could indicate we’re back to the good old $70-80 range that persisted through April and August,” Saxo Bank senior manager Ole Hansen said, according to Reuters.

John Kemp of Reuters argues that the surge in production this year is the result of the increase in prices in 2017 and the early part of this year. Enormous production increases tend to come 9 to 12 months after a shift in prices. And because prices have moderated since April, the production increases could also level off next year, suggesting that the blistering rate of growth seen in 2018 probably won’t last.

But for now, the flood of new supply may have put a cap on oil prices in the near-term, barring any unforeseen outages.

Why Oil Prices Could Still Go Lower

Oct 28, 2018


Crude markets had a panic attack in August and September that sent prices soaring. Sanity is now returning. Prices have fallen but are likely to move even lower over the next few months.

The panic attack was caused largely by Trump’s August 7 announcement that sanctions would be re-imposed on Iran. Anxiety about the effect on oil supply and prices was reasonable but the reaction was hysterical.

From August 15 to October 1, Brent December futures spread increased $3.01 (175 percent) from $1.72 to $4.73. Brent prices increased $15.53 (22 percent) from $70.76 to $86.29 (Figure 1).

Figure 1. Brent Dec spreads collapsed from $4.73 to $1.52 since Oct 1 & are now less than when price rally began after announcement to re-impose Iran sanctions in mid-August. Front-month Brent down from $86.29 to $76.17 but still higher than $70.76 Aug 15 price. Source: Barchart and Labyrinth Consulting Services, Inc.

Then spreads and prices collapsed. By October 24, spreads had fallen from $4.73 to $1.52, less than when the price rally began. Front-month Brent price decreased from $86.29 to $76.17. Prices and spreads recovered slightly on October 24 closing at $76.89 and $1.76, respectively.

It seems unlikely that the correction is over. The timing depends on how long it takes for markets to fully recover from what Vitol’s Ian Taylor calls the supply fear factor.  After 6 weeks of fear, markets must adjust to the reality that the  “oil market is adequately supplied for now.”

Clearly markets are concerned about more than just Iran. Falling or uncertain output from the problem children Venezuela, Libya and Nigeria, and take-away constraints from the Permian basin are critical.

Iran, however, is different because it is a completely artificial supply crisis. It was a choice made by Donald Trump and his advisors. Markets are used to the uncertainty of its problem children but not to the apparent certainty of an executive decision. The reaction was consistent with the cause—certain and linear.

It was also wrong.
World liquids production has, in fact, increased 2.91 mmb/d so far in 2018. Much of that increase came from producers other than U.S. & OPEC (Figure 2).


Figure 2. World liquids production has increased +2.91 mmb/d TYD 2018. Output from rest of the world excluding U.S. and OPEC increased after May 2018. Source: EIA STEO and Labyrinth Consulting Services, Inc.

That data, of course, includes losses from Venezuela, Iran, Libya, and Nigeria

Both OECD and U.S. commercial stocks increased in September moving comparative inventory (C.I.) 30 mmb higher and closer to the 5-year average (Figure 3).


Figure 3. OECD minus U.S. C.I. rose +30 mmb in Sept as both OECD and U.S. stocks increased. Yield curve suggests Brent avg monthly price of $78.89 was ~$4 over-valued. Current front-month Brent price also over-valued at $76.71. Source: IEA, EIA and Labyrinth Consulting Services, Inc.

This data is consistent with the July 2017-through-present yield curve shown in Figure 3. Based on that trend line, the September Brent average price of $78.89 was approximately $4.50 over-valued. Today’s front-month price of $76.23 is still over-valued by about $2.00.

Data further suggests that OECD and U.S. C.I. may have reached a minimum and will continue building later in 2018 and into 2019.

“We expect an oversupply in 2019, we may have to go back to the reduction,” Saudi Energy Minister,  Khalid al Falih  commented in late September.

Positive oil supply growth began in the first quarter of 2018 and price generally lags the shift to positive growth by several quarters (Figure 4). This is important because it signals a probable lessening of or end to the upward movement of oil prices that began in early 2016.



Figure 4. Oil prices will probably be lower going forward into 2019. Positive world liquids supply growth began in 1Q 2018. Price generally lags shift to positive supply growth by several quarters. Source: OPEC, EIA STEO and Labyrinth Consulting Services, Inc.

Year-over-year supply growth for the third quarter of 2018 was 2.35 mmb/d according the IEA latest Oil Market Report. Year-to-date supply growth is about  2 mmb/d.

The last time a secular shift like this occurred was in early 2014. The previous deficit shifted to supply growth in the first quarter of 2014. Prices, however, remained above $100 until the third quarter. Brent begin to fall in earnest and then collapsed during the fourth quarter of 2014.

We’re not suggesting that another oil price collapse is going to occur in 2019. Just saying, that data indicates that lower rather than higher oil prices are more likely going forward.

Why Oil Prices Will Fall In 2019 And Beyond

Nov 05, 2018


The decision by the U.S. to grant waivers  to eight countries, allowing them to continue to import oil from Iran, has helped ease the tension in the oil market. No longer are oil traders talking about $100 oil.

Iran’s oil exports stood at 1.7 million barrels per day in October and won’t fall to zero anytime soon. But that may not be the end of the story. “While consistent with our expectations, the granting of waivers does not imply that Iran exports will stabilize near current levels,” Goldman Sachs said in a research note on November 1. As more Iranian supply goes offline, the market will continue to tighten. Iran could lose nearly 600,000 bpd of exports by the end of the year, relative to October levels, the bank predicts.

“As a result, we still expect that the global oil market will be in deficit in 4Q18, leading to a strengthening in Brent time spreads,” Goldman said.

In fact, while everyone focuses on the short-term movements in oil prices, Goldman says it’s important to look at the futures curve. “In our view, the most interesting takeaway from today’s oil price sell-off is the parallel shift in the crude forward curve. This is consistent with a move down on the oil cost curve as recent supply news (less Iran losses, more US and Saudi production) point to fewer high-cost marginal barrels needed in 2019,” the bank said.

That’s a bit of financial jargon, but the gist is that traders are suddenly less concerned that high-cost producers will be needed to supply the marginal barrel. Earlier this year, when Iran sanctions were announced and fears about Permian bottlenecks permeated into the market, oil futures prices rose sharply, with Brent five-year prices rising from $57 per barrel in May to $68 per barrel in September. This can be boiled down to investors believing that the oil market will need high-cost production in the years ahead to supply the marginal barrel, as low-cost producers are at their maximum levels

However, over the last few weeks, the five-year Brent price fell back. “The retracing of this last move higher reflects the realization that such high cost marginal barrels may no longer be needed,” Goldman Sachs analysts wrote. That was due to several reasons. The EIA revealed that U.S. shale production surged in August, rising by an astounding 400,000 bpd compared to a month earlier. That’s obviously important to the immediate present, since it means a lot more supply has been brought online than previously thought, just as Iranian exports go offline.

But it also suggests that U.S. shale can grow more at a given price level than many analysts had thought. It shows that “US shale is able to deliver more production at the lower 1H18 incentive price than previously expected and that Permian constraints are not as binding as initially feared.” WTI averaged just $65 per barrel in the first half of the year, with some producers in the Permian likely fetching less than that because of discounts related to pipeline bottlenecks. Goldman’s logic is that if U.S. shale can grow as quickly as it did this year, with WTI in the $60s per barrel, then that means it can continue to grow briskly, which means that oil prices in the years ahead will be lower than previously thought.

Another reason longer-dated futures prices fell back was because Saudi Arabia and Libya added new supplies. Low-cost production from these two countries could lower the price of the marginal barrel in the years ahead. The same is true for Iran – the losses from Iran are going to be more gradual than previously thought.

The result is a steeper backwardation in the futures curve, Goldman argues. A long bet on oil is more profitable, which could induce investors to jump in. That, in turn, could help edge up spot prices and near-term futures. Goldman sees Brent rebounding to $80 per barrel by the end of the year.

However, the longer-dated price is still lower. The investment bank sees Brent falling back to about $65 per barrel by the end of 2019 as midstream bottlenecks in the Permian clear up. That may allow OPEC to dial back on production and rebuild spare capacity. Goldman calls this a “re-anchoring of long-term oil prices.”

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