The picture that Goldman paints isn't all bad (which is a Surprise). there are predicting a small deficit this year but warn that things could change.
The Biggest Threat To Oil Prices Is The Dollar, Not A Supply Glut
By Charles Kennedy - Jul 28, 2016, 10:12 AM CDT
The glut of gasoline and other refined products has taken center stage for the oil markets, threatening to initiate a new bear market and push oil prices down below $40 per barrel for the first time in months. But while a surplus of refined products is weighing on crude prices, there could be another culprit that does not get as much publicity.
Goldman Sachs says that a strong dollardeserves more blame for an oil price downturn, and further strengthening of the greenback looms as a much larger threat to prices than the gasoline glut. The U.S. Federal Reserve could raise interest rates and the effect of that, combined with lingering global financial uncertainty, could push oil prices below $40 per barrel. Goldman says that while there is indeed a glut of gasoline, it won’t be responsible for further declines in oil prices because it is a supply-side and not a demand-side problem.
“We are currently going through the typical later stages of an oil bear market, when strengthening crude fundamentals run into weakening product fundamentals,” Goldman wrote in a July 27 report. “Uncertainties on the near-term path of the oil market re-balancing have left the U.S. dollar as the primary driver to lower crude oil prices recently.” In other words, the fluctuation of the dollar could have a larger impact on oil prices than the fundamentals of oil supply and demand.
There are several other factors that could push oil back down to $35 per barrel or lower. They include a return of production from Libya or Nigeria (unlikely, but not impossible), a global slowdown in demand, or China’s move to slow its stockpiling of crude for its strategic petroleum reserve.
Any of those possible scenarios would erase the 230,000 barrel-per-day deficit that the investment bank is predicting for the second half of the year.
The dollar may loom over oil prices, but it fell by the most in nearly two months on Thursday after the Fed hinted that it would stay cautious. The greenback fell 0.5 percent against an array of currencies after the Fed wrapped up its Wednesday meeting without signs of an imminent rate increase.
By Charles Kennedy
To me it seems that we could have more loss of supply e.g. Venezuela (creating more of a deficit) and the Nigerian situation looks to be worsening.
Nigeria Loses 700,000 bpd Crude Output To Militant Attacks
By Tsvetana Paraskova - Jul 27, 2016, 12:19 PM CDT
Recent military attacks on oil infrastructure in Nigeria have dragged the country’s daily crude production down by 700,000 barrels per day(bpd), figures by the Nigerian National Petroleum Corporation (NNPC) show.
Nigeria’s oil output is currently 1.5 million bpdcompared to what would be a regular production of 2.2 million bpd. However, as Seeking Alpha reports, traders estimate that the current output may be even lower, at some 1.3 million bpd.
The Niger Delta Avengers (NDA) have claimed most of the recent sabotages at oil facilities. The militant group, which has vowed not to allow the export of even “one litre of crude in the Niger Delta,” has been targeting pipelines belonging to NNPC and foreign oil majors Shell, Eni and Chevron.
Just a few days ago, NDA claimedresponsibility for the latest pipeline blast in the Niger Delta, this time of a gas transport facility of the NNPC in the state of Akwa-Ibom. The disruption was the latest in a long stream of attacks on oil and gas production and transport infrastructure in the impoverished Niger Delta, which has also involved several other militant groups.
Nationwide, currently facilities at Qua Iboe, Forcados and Brass River are under force majeure, while Escravos and Bonny Light experience major loading delays.
By May this year, the increasingly frequent attacks had cut such a significant portion of Nigeria’s oil output that it caused a rally in global oil prices.
Now, the federal government says it is conducting talks with militant groups from the Niger Delta region but the NDA has said it is not taking part in any such talks. In any case, the attacks, which have so far cost Nigeria’s top spot among oil exporters in Africa to Angola, seem likely to continue until the government succeeds in meeting the various demands of the different groups.
By Tsvetana Paraskova
FAR Price at posting:
8.0¢ Sentiment: Buy Disclosure: Held
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