What other key factors are affecting oil prices, after the attack on Saudi Aramco?

NYSE:USO September 16, 2019 10:56am

What’s going on with oil prices?

From Andrew Hecht
NYSE:USO September 10, 2019 10:16am

Where are oil prices headed?

oil stock
From Andrew Hecht
NYSE:USO September 4, 2019 12:59pm

How is China affecting the global price of oil?

oilbarrell
From Andrew Hecht
NYSE:USO August 26, 2019 12:44pm

Oil – An Important Level for Investors to Watch

oil stock
From Andrew Hecht
NYSE:USO August 19, 2019 12:42pm

What’s the status of the Saudi Aramco IPO?

oilbarrell
From Andrew Hecht
NYSE:USO August 12, 2019 1:24pm

Crude Oil: Lots Of Volatility As Inventories Continue To Decline

oilbarrell
From Andrew Hecht
NYSE:USO August 6, 2019 11:12am

Inventories Push Oil Higher

oil stock
From Andrew Hecht
NYSE:USO July 31, 2019 3:03pm

Will oil prices move higher amid increased tension with Iran?

From Andrew Hecht
NYSE:USO July 23, 2019 9:56am

Why is There Weakness In The Brent-WTI Spread, Despite Tension With Iran

oilbarrell
  • Brent-WTI moved lower even though the price of oil climbed
  • The risk is on the upside in the spread
  • BNO and USO are the ETFs that reflect the short-term price action in the two benchmarks
    In the world of crude oil, the two leading benchmark pricing mechanisms that trade on the Intercontinental Exchange and the NYMEX division of the CME respectively are Brent and West Texas Intermediate or WTI. Approximately two-thirds of the world’s producers and consumers price their petroleum using the Brent price, including oil from Europe, Africa, and the Middle East. The United States is now the world’s top producer, and its crude oil uses the WTI benchmark.  WTI is a lighter and sweeter grade of crude oil, meaning it is easier to refining into gasoline. Brent has a higher sulfur content making it less sweet and more economical to refine into distillate products.  The price differential between Brent and WTI is both a quality and a location spread, but it is much more. Since the Middle East is the world’s most turbulent political region, the spread is also a barometer of risk in the area.    Brent-WTI moved lower even though the price of oil climbed Since the Arab Spring in 2010, the price of Brent crude oil has typically traded at a premium to WTI because the political risk in the Middle East rose. At the same time, increasing US production caused the price of WTI to trade at a lower price than Brent, causing the premium to rise. Source: CQG The chart of the price of nearby WTI futures minus Brent futures highlights that before 2009, the range in the spread was from a $6.33 premium for WTI to a $3.24 premium for Brent. Since gasoline is the world’s leading oil product, the WTI tended to trade at a premium to Brent. However, the world changed with the political changes in the Middle East, and since 2009, the range has been from a $2.68 premium for WTI to a $27.64 premium for Brent. The Brent premium has typically moved higher when the price of oil rallies. In February 2016, when crude oil fell below $30 per barrel on both benchmarks, WTI briefly returned to a premium.  In early June, the price of nearby WTI futures fell to a low at $50.60. As the price was falling in late May, the Brent premium moved to $11.59 per barrel, the highest level since 2015. Since then, the price of oil recovered, but the Brent premium moved to around the $6.45 per barrel as of last Friday.  Four consecutive weeks of inventory declines in the US as reported by the API and EIA led to gains in the price of WTI futures which gained on Brent.    The risk is on the upside in the spread Meanwhile, the other reason for higher oil prices over recent weeks has been the rising tension in the Middle East. The Trump administration slapped sanctions on Iran and put an end to exemptions that allowed the theocracy to sell petroleum to customers around the world. Iran retaliated with attacks on oil tankers near the Straits of Hormuz, the downing of a US drone, and missile attacks on Saudi sovereign territory. Just last week, an attempt to hijack a British oil tanker only failed because of the increased military presence in the region. Iran has also begun to enrich uranium, which could lead to even more hostilities over the coming days, weeks, and months. As the political temperature rises in the Middle East, supply concerns will increase, leading to gains in the price of oil. Since Brent is the benchmark for oil from the area, we could see price spikes in the Brent-WTI spread.   BNO and USO are the ETFs that reflect the short-term price action in the two benchmarks In the ETF market, the United States Oil Fund, LP (USO) is the ETF that replicates the price action in WTI crude oil on a short-term basis. The United States Brent Oil Fund, LP (BNO) is the ETF that follows the price of the Brent benchmark. A long position in BNO and short position in USO is one way to synthesize the Brent-WTI spread without venturing into the futures markets.  The Brent-WTI spread declined from $11.59 in late May to the $6.45 per barrel level as of Friday, July 12. The spread is a barometer of political risk, and the potential for a spike back to the recent high or even higher is likely to increase with hostilities in the Middle East.  _________________________________________________________________________________ About the Author  Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories.  Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.  Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.
NYSE:USO July 16, 2019 6:23pm

Why OPEC is a relic of the past

  • A nine-month extension to production cuts
  • Russia’s profile rises
  • Output policy now depends on a triad of the leading producers
  The international oil cartel met on July 1 and 2 at its biannual meeting in Vienna, Austria. Before the meeting, the oil minister from the most influential member of OPEC, Saudi Arabia, said that his country would like to see Brent crude oil in a range from $60 to $70 per barrel.  Trades issues that threaten the global economy and the rising tensions in the Middle East are pulling the price of the energy commodity in opposite directions.  OPEC is not the influential body that determines the international price of crude oil anymore. The United States now produces over 12 million barrels per day, and Russia is one of the three leading producers. Two of the three world leaders are not members of the cartel, making it a toothless tiger. Meanwhile, OPEC attempted to shift the power balance back in its favor at the most recent meeting.    A nine-month extension to production cuts The price of crude oil went into and came out of the meeting within the price range that is the sweet spot for the Saudis.                  Source: Barchart   The chart illustrates that last week, the active month September Brent crude oil futures contract that trades in the Intercontinental Exchange traded in a range from $62.07 to $66.74 per barrel and closed last Friday at just over the $64 level. Brent is the benchmark pricing mechanism for most OPEC members and two-thirds of the world’s petroleum.  Since the price of Brent futures slipped from a high at $75.59 per barrel in April, it was no surprise that the members of the cartel agreed to extend the 1.2 million barrels per day production cut at their meeting. The only surprise was that the members decided to formalize its relationship with Russia with a partnership charter.  The Russians have been involved in OPEC production policy since early 2016 when the price of petroleum slipped below the $30 per barrel level. Russia bridged the divide between the Saudis and Iranian who have been arch-enemies in the region for years, to engineer a production cut that lifted the price of oil from the lows.  The news of the extension for the next nine months came as no surprise as Vladimir Putin and Saudi Crown Prince Mohammed bin Salman leaked the information at the G20 meeting the weekend before OPEC ministers gathered in Vienna.    Russia’s profile rises Russia’s involvement in OPEC production has been growing over the past three years. At the late 2018 meeting, the oil ministers could not agree on a final level for an output but until Russian oil minister Alexander Novak and President Putin mediated to come up with a 1.2 million barrels per day cut to the previous production quota when the price of oil was on its way to the lows late last year. Russia agreed to participate in the cut and over the years has bought lots of goodwill with the other members of the cartel.  Without Russia, OPEC would have absolutely no power these days since the US is now the world’s leading oil-producing country. The partnership agreement with the Russians serves to preserve at least some of the cartel’s influence when it comes to the path of the price of the energy commodity.    Output policy now depends on a triad of the leading producers In reality, OPEC is a relic of the past. The price of oil is now under the control of the three leading producers. Oil is one of the most political commodities in the world as more than half the reserves are in the Middle East. The US sanctions on Iran and recent retaliation when it comes to attacks on tankers, missiles flying from Yemen into Saudi sovereign territory, and an attack on a US drone near the Strait of Hormuz have increased supply risks for crude oil exports from the region.  Oil is a market with lots of vested political interest. The US administration has not been shy about its desire for more output from the Saudis and allies in the Middle East to keep the price of oil under control. The situation with Iran has only increased US pressure to increase production. Russia and the Saudis would prefer a higher price but realize that would only encourage even more oil to flow from the US. The political nature of the commodity means that there are likely lots of behind the scene influence peddling between Washington, Moscow, and Riyadh these days.  President Putin and the Crown Prince of Saudi Arabia already knew the verdict of the OPEC meeting before the ministers sat down at the table on July 1, and it is likely that President Trump also was aware of the outcome of the meeting before it occurred.  OPEC is now nothing more than a trade organization with Russia pulling the strings, and the US exerting influence through its relationship with Saudi Arabia.  _____________________________________________________________________________________ About the Author  Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories.  Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.  Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.
NYSE:USO July 9, 2019 11:17am

Oil prices drop amid cooling geopolitical tensions

From Reuters: Oil prices fell just before the settlement on Friday after the remaining parties to the Iran nuclear deal vowed to help normalize trade with the Middle Eastern nation.
NYSE:USO June 28, 2019 6:12pm

Oil prices edge slightly higher as investors await G-20 outcome

oilbarrell
From Reuters: Oil prices inched higher on Thursday, kept in check by worries about whether the G-20 summit will produce a breakthrough on trade that could boost crude demand.
NYSE:USO June 27, 2019 5:55pm

Oil prices rise following a fall in crude stockpiles supply

oil pump
From Reuters: Oil prices rose on Wednesday, buoyed by an outage at a major refinery on the U.S. East Coast and industry data that showed U.S. crude stockpiles fell more than expected.
NYSE:USO June 26, 2019 2:29pm

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