OIL MARKET WEEK AHEAD: Another Round of OPEC Wrangling

The next OPEC meeting is just around the corner and the wrangling between Saudi Arabia, OPEC and Russia over production levels has started again.

Energy 1

The next OPEC meeting is just around the corner and the wrangling between Saudi Arabia, OPEC and Russia over production levels has started again. Russia and Saudi Arabia are finding themselves yet again at loggerheads and while Saudi Arabia is calling for the current cuts to be extended beyond the current July deadline, Russian producers are proving reluctant.

However, what is different this time compared with the similar disagreement the two major producers had at the start of the coronavirus outbreak is that not only is their production already substantially lower – total Saudi oil shipments in May declined to 6.6mbd from 9.3mbd in April - but US production is also significantly lower. The US oil rig count has been decimated with only 318 rigs still operational at the end of last week, down a full 665 from a comparable week in 2019. This, coupled with the reopening across Europe and the US, makes it difficult to gauge where oil producers’ output levels “should be.”

Russia will again play for time, waiting to see if the reopening of Europe and the US will create sufficient demand to remove the built-up surplus. In the US this will still take a while as the massive amount of Saudi oil shipments dispatched just before the production cuts were put in place in May are still either being offloaded or waiting to offload - hence this week’s increase in US petroleum stocks reported both by the American Petroleum Institute and by the Energy Information Agency. Nonetheless, the overload of crude oil in the US should start easing over the coming weeks. Saudi Arabia has dispatched only a modest 570,000 bbl to the US in May, down from 1.3bn bbl in April.

US, Eurozone and German manufacturing PMI data on Monday will provide some insight into the speed of recovery in the manufacturing industry in major economies and consequently demand over the coming weeks. Equally key will be US jobless data on Thursday and Friday.

What is happening with air traffic?

Most of the airlines that have managed to survive the coronavirus, albeit sometimes with government help as in the case of Lufthansa and the US carriers, are tentatively resuming flights in June and are expecting to increase the number of planes in the air throughout July and August. The closest idea about what the rest of the year could be like for the airline industry comes from the International Aviation Travel Agency’s monthly Air Passenger Market Analysis published at the end of each month. In April, 47% of travellers surveyed by IATA said that they would wait a month or two before travelling by air while a solid 30% didn’t expect to board a plane for another six months. Doing some rough maths on the numbers and adding these travellers with another 10% that don’t expect to fly before the end of the year and another 5% that don’t intend to fly at all in the foreseeable future means that air travel is unlikely to return to more than 55% of its capacity before the end of the year.


For Latin America, where the virus is raging at full strength, the recovery will take significantly longer as some countries, like Argentina, plan to have a flight ban in place until 1 Sept. For the moment the surplus jet fuel available in the market is being either blended down into diesel pool, creating a surplus of diesel, or is being stored at sea, which is a risky option because it degrades after several months and can no longer be used for flying.

Of all the oil products demand for jet fuel demand is likely to take the longest to recover.

When

What

Why is it important

Sun 31 May 02.00

China NBS May manufacturing PMI

Further recovery in Chinese manufacturing expected for May. April PMI was 50.8

Mon 1 June 02.45

China May Caixin manufacturing PMI

Caixin surveys smaller to medium sized businesses

Mon 1 June 08.55

Germany May manufacturing PMI

Last reading at 36.8, indicating contraction

Mon 1 June 09.00

Eurozone May manufacturing PMI

Last reading at 39.5, little change expected

Mon 1 June 14.45

US May manufacturing PMI

Last at 38.9

Tue 2 June n/a

US May vehicle sales

Last at 11.4m

Tue 2 June 21.30

API crude oil stocks

Last week stocks rose despite expectations of a decline

Wed 3 June 15.00

US April factory orders

Expected to show a 12.4% decline

Wed 3 June 15.30

EIA US crude oil stocks

Last increase at 7.928M

Thu 4 June 13.30

US initial jobless claims

Up 2.1m this week

Fri 5 June 18.00

Baker Hughes US oil rig count

The decline in number of operational rigs could stop as US economy reopens

Fri 5 June 20.30

CFTC oil net position

Money managers speculative oil positions


More from Oil

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.