skip to main content
Close Icon We use cookies to improve your website experience.  To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy.  By continuing to use the website, you consent to our use of cookies.
Global Search Configuration

Nigh on a week after OPEC called for a meaningful output cut, oil markets are pricing in at least a much tighter demand/supply balance. However, ahead of the weekend's OPEC/non-OPEC gathering issues remain as to planned vs actual outcomes.

  • Big oil move since OPEC flattens both Brent and WTI curves - front end significantly higher.

 

Brent forward curve

 

  • Aggregate Brent open interest has held just under immediate post-OPEC meet steep increase. That for WTI is a record high.
  • Options skews from Feb17 onwards side with OTM puts, but this could be reflection of hedging as well as scepticism all the agreed cuts plus non-OPEC are forthcoming.
  • Part of WTI curve in backwardation as US producers use forward curve to hedge and lock-in $50-plus. For some firms $55-plus is highly likely.
  • Latest & pre-OPEC CFTC, indicates US producers raising shorts, but Brent peers cutting.
  • This WTI hedging raises probability of higher output from US next year and could also leave country as the swing producer. Key going forward will be production stats and Rig Count, both of which are rising.
  • Nimble US producers can quickly raise output via drilled but uncompleted wells (DUCs), but jury is out on whether enough to offset planned OPEC output cuts.

 

US Production and DUCs

 

  • Sharply narrower Brent contangos & portions of WTI curve (Sep17-to-Q2 2019) flipping in and out of backwardation suggest significant oil market tightening through 2017.

Front month Brent Technical Analysis suggests bullish structure still in tact:

  

Feb17 Brent technicals

 

  • The recent rally off the 46.91 higher low spiked through the former peaks at 54.46 and 54.82 (June & October, respectively) to reach 55.33 on Monday.
  • Given that the market has rallied from 46.91 to 55.33 merely in four days, and that we have not yet seen a sustained break above 54.46/82, a near term dip towards 51.02 cannot be ruled out.
  • Once oversold conditions are unwound, bulls would look for a fresh attempt to decisively break above 55.33 to open scope towards the May 2015 peak at 69.63 in due course
  • The broader bullish trend in force since January and the bullish indicators also support a bull extension
  • Only a return through the 46.91 higher low damages the bullish structure and threatens the key 44.67 trough.

Issues for the weekend and beyond:

  • OPEC/non-OPEC this coming weekend may reveal whom of latter will offer to cut aside from Oman and Russia (commitment is not guaranteed from Moscow yet). Brazil, Kazakhstan? Kazahs recently started production from Kashagan field. Natural decline will leave Mexico -150k bpd next year, but are reluctant to cut more.
  • Non-OPEC compliance monitoring needs to be decided.
  • Global inventory drawdown in H1 2017 remains key.
  • What happens if Nigeria/Libya production significantly increases? Both are exempt from OPEC deal.
  • Also note, Saudi Arabia often cuts output by circa 500k in Winter (schedulerd OPEC deal) so may not become clear until late Spring when seasonal production usually increases as to how much it has actually cut.

Fundamentals: marcus.dewsnap@informagm.com

Technical analysis: kamran.sheikh@informagm.com

Recommended Articles

  • EPFR - fund flow & allocations data, Zephyr Portfolio Analyt...

    Informa’s State of the Markets Roundtable

    By Cameron Brandt 03 May 2021

    Our Financial Intelligence leaders discuss ‘Sectors to watch, and investing opportunities’ Our team discuss whether we are looking at a rebound or recovery scenario as we move through 2021, what to watch out for in China, the record spending proposed by Biden and the potential impact of what this spend ends up buying, their thoughts on inflation, and more…

    Topics Industry News

  • IGM FX and Rates

    IGM Insights

    By Jonathan Cavenagh 28 Apr 2021

    IGM Insights | Wednesday, 28th April 2021 - G10 – Commodity bloc still likely to be favored over low yielders - Emerging – Mexican Peso set to reap rewards of US recovery - China – PBOC may turn proactive to inject liquidity in May - Technical Analysis – Copper/Gold ratio at three-year lows

    Topics Industry News

  • IGM Credit, IGM FX and Rates

    IGM Credit Launches Verified Bond Data on IOWArocks data marketplace

    20 Apr 2021

    Boston, MA – (April 20, 2021) – Informa Global Markets (IGM) has launched its syndicated corporate bond data on the IOWArocks data marketplace, offering firms secure, direct access that automates business operations while driving new growth through a trusted source.

    Topics Industry News

;

Any questions? Speak to a specialist

Would you like to request sample data or analysis from Informa Financial Intelligence? 

See how our tailored solutions can help you gain a competitive advantage: