Daniel Lacalle

Oil prices still trading with geopolitical premium

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My interview on CNBC.

 

Oil rebounds over the support every time it touches $101/bbl Brent. The issue remains in weak global demand added to less concerns about supply, but at the same time the tightness in the market has increased with global disruptions at all-time high. However, supply-demand picture is still of overcapacity and geopolitical premium has fallen despite global disruptions. However, there is room for this premium to come down further as US becomes energy independent and non-OPEC supply overtakes OPEC above the historical levels, making the call on OPEC much lower than 25mmbpd.

July apparent China oil demand was down 2.1% y-o-y. Gasoline slowed to a 6-month low of 8.7% y-o-y (down from 10%+), leading to a 12.8% rise in gasoline export volumes (according to HSBC). Middle distillate demand contracted 1.2% y-o-y as diesel demand fell 2.2% and smaller volumes of kerosene increased 6.0%. Fuel oil declined the most, -28.3% y-o-y as imports collapsed.

Oil product trade balance was in net export for the 3rd time this year, with total exports reaching a record of 0.45mmt, as the market became oversupplied. With the ongoing overcapacity issue in the refining sector, many analysts believe China is likely to be a net-exporter for FY2014.
The differencial between WTI and Brent has fallen 25% YTD and now stands at $6.6/bbl. While supply disruptions due to geopolitical conflicts have reached a historical high, the low demand and ample supply have kept prices weak. Libya has making progress in increasing production, rising to 535k b/d on increased output at the El Feel & El Shahara fields. On the geopolitical side, there are reports Kurdish forces, backed by US airstrikes, have reclaimed territory around the Mosul dam from Islamic State fighters.

At the same time, OPEC sailings are expected to increase in August 5% again.

 

Read more on weak oil prices trading well below OPEC budget needs here

 

 

Important Disclaimer: All of Daniel Lacalle’s views expressed in this blog are strictly personal and should not be taken as buy or sell recommendations.

2 Respuestas a Oil prices still trading with geopolitical premium

  1. 843-628-5611 15 enero, 2015 a 10:55 pm

    Now that Brent got to 45 and the market is near panic, what do you expect from here. Goldman is saying $45 ave in 2015 and a pick up in the second half. We do you think? production should shut over 6-9 months at current prices… but you saw this coming.
    Best,
    Tyson Halsey, CFA 843-628-5611

    Responder
    • Daniel Lacalle 19 enero, 2015 a 2:50 pm

      I assume an L shaped recovery… bouncing around the $45-50/bbl for a while. Best regards

      Responder

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