Weekly Crude Oil Inventories Report

Oil Higher As OPEC Talks Fail To Agree Production Increases Ahead of US Sanctions on Iran

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Oil continued to trade higher this week despite the latest inventory data from the Energy Information Administration in the US which showed stockpiles having risen over the last week. The data from the EIA for the week ending September 21st showed that crude inventories rose 1.9 million barrels to 396 million barrels. The increase took the market by surprise as the consensus forecast was for a decrease of 1.3 million barrels.

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Another critical feature of the data was the decline in refinery crude runs which fell by 901k barrels per data. Refinery utilization rates were down by 5%, falling to 90.4%, its lowest level since May, fuelled by seasonal declines in both Midwest and East Coast refining activity.

OPEC Talks Fail To Produce Deal

However, the main focus for oil markets this week has been the news that talks between OPEC and non-OPEC producers over the weekend / Monday failed to produce a formal agreement. OPEC was hosting the talks in a bid to secure a deal on further oil production increases, specifically in Saudi Arabia, where supply levels have been plummeting recently.

Trump Slams OPEC (Again)

The talks come in the wake of reports that Saudi Arabia is said to have expressed its view that it would be happy with oil prices above $80. This statement drew criticism from president Trump who took to Twitter saying: “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!”

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However, the meetings failed to produce an agreement with Saudi Arabia merely pledging that it would increase production, but only in the event of increased demand. After the meeting, however, officials from both Saudi Arabia and Russia (the biggest non-OPEC producer) told reporters that they had no plans for any immediate production increases.

US Sanctions Approaching

The issue of supply levels in the market is becoming increasingly important given the nearness of fresh US sanctions on Iran which are due to be activated on November 4th. The sanctions are expected to wipe around 1.5 million barrels per day of the supply of the market which, as yet, does not look likely to be covered by production increases from other nations despite ongoing chatter of a potential 0.5 million barrel per day increase under discussion.

Production in Venezuela is also an increasing issue due to ongoing terrorist attacks on foreign-owned oil sites, a sharp decline in infrastructure as well as US sanctions on the Caracas government which, combined, have seen oil production falling by around 1 million barrels per day amidst forecasts of further declines.

BNP Paribas Looking For Higher Oil

Considering these supply constraints alongside the failure of this latest OPEC meeting to achieve its goals, it seems that higher prices are the most likely outcome in the near term.

Commenting on the matter at the Reuters Global Oil Forum, BNP Paribas oil strategist Harry Tchilinguirian said, “It is now increasingly evident, that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next 3 – 6 months that it will need to resolve through higher oil prices”

Technical Perspective

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After trading to fresh 2018 highs earlier in the year, testing the major 2011 broken low, oil price dipped back slightly but are now trading higher once again within the broad bullish channel which has framed price action since the 2016 lows. To the topside, the next key level will be the 2018high around 75.15 which, if broken, will bring the 61.8% retracement from 2014 highs (79.51) into focus.  To the downside, any retracement lower should find support along with rising channel base which, while intact, keeps the bullish bias in place.

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