Commodity Update; Crude Oil – 14 October 2014

Crude benchmarks under pressure once again as fears of OPEC price war escalate

Following a fortnight of relative calm, oil markets went out with a bang yesterday as speculation that OPEC could be about to engage in a North American price war returned to the surface once more.

The sell off came on the back of the official selling prices report for Saudi Arabia, where it was revealed that OPEC’s largest producer has recently reduced the price of oil exports to North America.

While officials have commented that the actions form part of a move to increase market penetration before several major US refineries come back online this month, others believe that it is the first step toward an all out price war with North American shale oil producers.

Both Brent and WTI crude fell on the back of the news, with Brent breaking below the $85 per barrel level and WTI reaching lows of $78 ahead of the Monday close.

Although it is not possible to say exactly what Saudi Arabia’s intentions are, one thing that has become clear is that the kingdom is in no rush to reduce its own production in order to prop up the wider market.

While we cannot completely rule out collective action at the next meeting of OPEC members on 27 November, it appears unlikely. This leaves those hoping to see oil prices recover beholden to market forces of supply and demand during the weeks ahead.

On this note, with US crude stocks still running high following months of oversupply, it will take time for ample supply in the North American market to begin to be drawn down.

In addition to this, and contrary to popular opinion; demand has also remained relatively strong throughout the downturn in prices, with many refineries processing more barrels per day than at any other time since 2006.  

As a result, there appears little room for either a substantial demand boost,  or a significant contraction in available supply. For this reason, we expect that the risks for oil prices will remain toward the downside during the weeks ahead, at the very least we expect upside from here to be limited.

Brent/WTI // Hourly Intervals

BRENTWTI05NOVEMBER

.

Brent/WTI // 8 Hour Intervals

BRENTWTI8HOURS05NOVEMBER

.

IMPORTANT:
The contents of this report and the Stockatonia website (https://www.stockatonia.co.uk/) have been prepared to provide general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Please always remember that the value of investments may fall as well as rise. Investing in securities, and any other products associated with them, carries a high degree of risk and may not be suitable for all investors. For advice or guidance related to investing in securities markets, please consult with your own financial adviser.