- Brent and WTI crude futures have rallied 12% and 9% respectively over the past month, leaving both within touching distance of fresh multi-year highs.
- US President Donald Trump took to Twitter on Thursday to express his displeasure at recent strength in crude prices.
- ANZ commodity strategists describe global crude markets as “tight as a drum” with OPEC’s ability to balance the market “becoming even harder”.
Global crude prices have been on the charge over the past month, lifting back towards multi-year highs struck in May.
Brent crude futures — the global benchmark — have rallied 12% since the middle of August while West Texas Intermediate (WTI) futures have added a smaller 9%.
Like many Australian motorists, the strength has not gone unnoticed by US President Donald Trump who took to Twitter on Thursday to express his displeasure at recent developments, especially at a time when Americans are readying to vote in mid-term elections.
“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!” Trump tweeted.
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!
— Donald J. Trump (@realDonaldTrump) September 20, 2018
While motorists in Australia and worldwide would like to see Trump get his wish, there’s just one small problem that may be problematic to fix.
OPEC is not in a position where it can do much to lower prices given spare production capacity among the cartel is already falling rapidly, according to Daniel Hynes and Soni Kumari, Commodity Strategists at ANZ Bank.
Accompanied by seasonal strength in demand, especially in large emerging markets such as China, India and Brazil, they say it’s left the global crude market as “tight as a drum”.
“OPEC is struggling to battle through a perfect storm of strong demand and bigger-than-expected supply losses,” they say.
“Despite OPEC agreeing to increase production with Russia in June, the market continues to tighten.
“With spare capacity falling sharply, [OPEC’s] ability to balance the market is becoming even harder.”
Further complicating Trump’s desire to lower prices, Hynes and Kumari say the tightening in market conditions has been exacerbated by the US decision to reintroduce economic sanctions on Iran from early November, including its crude exports.
“The risk-averse nature of many consumers of Iranian crude has seen them shun their purchases ahead of the 4 November deadline,” they say.
“According to shipping data compiled by S&P Global Platts, Iranian exports fell to only 1.89 million barrels per day (mb/d) in August. This is more than 1mb/d below the levels seen just before the President Trump announced that the US would be re-apply sanctions on Iran’s oil exports.”
Hynes and Kumari say the drop in Iranian exports well in advance of the US deadline appears to be a result of a lack of buying from its key customers, India and China.
“China just endured its longest period without receiving Iran crude for three years,” they say.
“According to tanker data compiled by Bloomberg, Iran’s biggest customer didn’t receive any supertankers for 18 days between late August to mid-September. While the reason for this hiatus is unclear, it will certainly put added pressure on the oil market.”
As such, Hynes and Kumari say that despite Trump’s desire for lower crude prices, the near-term risks appear slanted to the upside.
“With demand remaining strong in the short term, we still see oil balances constructing higher oil prices.”
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