Crude oil prices were higher this week as the latest data from the Energy Information Administration showed that US crude oil inventories fell for a fifth week last week, dropping 2.1 million barrels to 394.1 million barrels per day for the week ending September 14th. Crude stockpiles are now back down to levels not seen since February 2015. However, the decrease in stocks was less than expected with analysts had forecast a 2.7 million barrel drawdown. Gasoline stockpiles were also reduced last week, seeing un-seasonally strong demand falling 1719k barrels versus an expected gain of 100k barrels.
The US Sanctions Approaching Fast
The market is fast approaching the November 4th starting date for US sanctions on Iran, and it seems that the market fears that OPEC won’t be able to boost production enough to make up for the lost supply from Iran, causing tightness in the market.
OPEC, along with non-OPEC oil producing countries such as Russia are due to meet in Algeria on Sunday to discuss the situation and how best to boost production to compensate for lost Iranian supply.
Saudi Arabia Wants Oil Around $80
According to Reuters, Saudi Arabia reportedly wants to keep oil between $70 and $80 a barrel intending to striking a balance between maximizing profits and maintaining prices contained until after the US mid-term elections in November. However, Bloomberg is reporting confidential Saudi Arabian sources has having said that the kingdom is happy for oil to sit above $80 per barrel which is allowing prices to move higher currently.
Saudi Arabian Inventories Also Fall
Indeed, the latest industry data shows Saudi Arabian crude oil inventories seeing their most significant decline in eight months last week to 5.51 million barrels per day. This comes on the back of the kingdom having slashed its production unexpectedly in June in a bid to keep exports stable. Crude oil inventories in Saudi Arabia have been falling for three years and are now down over 11% since May 2017 in line with the production cuts agreed by OPEC. However, the kingdom raised production once again over August following the unexpected dip in June and July, reportedly boosting output by 124k barrels per day.
OPEC Meeting Awaited
The market will be keenly awaiting the outcome of the upcoming OPEC meeting given these reports that Saudi Arabia is comfortable with oil above $80 at a time when the cartel is trying to boost production to bring prices down. It seems that investors have been encouraged by these comments from Saudi Arabia with the latest market positioning data showing that call options (options to buy) oil at $80 and $85 per barrel ( September 25th expiry) have jumped nearly 45% in just two days.
Russian Firms Seeking Euro Buyers
In other oil-related news, a major Russian oil firm is reportedly looking for buyers to agree to pay in Euros rather than Dollars to act as insurance against the prospect of any further US sanctions against Russia. Russia has been under US sanctions since 2014 following Russia annexing the Ukrainian Crimea region. However, the US has recently threatened to impose fresh sanctions based on what it describes as Russia’s “malign” activities elsewhere.
After breaking down to test just ahead of the local rising trend line support (green), oil has once again turned higher and is now putting pressure on the last two weeks’ highs. Above here and focus will shift to another test of the current 2018 top around 75.15. To the downside and key, supports can be seen at the 67.07 and 67.42 levels with the latter also seeing the rising trend line from 2016 lows also.