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Last Friday, oil prices fell for the tenth day in a row. According to CNBC, this is the longest series of crude oil losses in 34 years.
I've covered the factors behind this decline in the previous two articles. To recap, the loss of China as an export market for US oil producers has swollen US crude stocks and the imminent impending sanctions imposed by the Trump administration on Iran has largely contributed to the decline.
Matt Badiali, Senior Research Analyst at Banyan Hill, thinks the decline is now excessive. Matt says that between April and September, Iran has reduced its exports by 830,000 barrels / day. But Saudi Arabia and the United States increased their production more significantly, so the world did not feel the negative effects. As Matt explained to me:
My research has shown that in the run-up to sanctions in Iran, many Asian countries have reduced their imports of Iranian oil. China included. These countries have reduced Iranian exports by about 900,000 barrels a day. This demand has not disappeared, it has been filled by the United States and Saudi Arabia. The US government then granted waivers to most of Iran's oil trading partners. Now that these same countries have obtained exemptions, they are buying Iranian crude again … leaving a glut of oil on the market. I agree that the demand has not decreased. The supply, especially from the United States, is rising.
That said, I am very skeptical that the Saudis can maintain this level of production. It is only about 130,000 barrels a day less than their highest production in the last decade, and they only maintained this level of production a few months before cutting back on their expenses. I believe the market still has a drop in integrated demand. This seems wrong. I think it will be the low price of oil for the next 12 to 18 months. "
Michael Bertuccio, President and CEO of HB2 Energy, also pointed out that refinery maintenance could contribute to the perception of an oversupplied market:
I think there may be more immediate and short-term factors in the drop in oil prices, particularly the West Texas (WTI) cash market in Cushing, Oklahoma. This is the maintenance season of the refinery. Of the approximately 14 million barrels per day (MMB / D) of refining capacity in PADDs 2 and 3, about 6% have been offline.
Related: The biggest threat to the dominance of the dollar
It is much more transparent in the physical oil markets, where we saw Midland trading $ 15 plus a barrel under the WTI. Houston Ship Channel (MEH), however, is getting closer to Brent, which is currently $ 10 / barrel higher than WTI. Add a stronger, stronger US dollar to the equation, and I see nothing more than a short-term price correction. "
Michael agrees that global demand remains strong, including Chinese demand. He believes exports will accelerate with future pipeline infrastructure and that broad base margins will narrow towards Brent, which is a better benchmark for global oil stocks.
One thing is sure. Oil prices are up for sale compared to what they were a month ago. It seems unlikely to me that a continuing decline is supported by fundamentals, particularly if the US ceases granting exemptions from Iranian oil imports within six months – as stated intention.
By Robert Rapier
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