Released January 10, 2022 | SUGAR LAND
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Written by Geoffrey S. Lakings for Industrial Info Resources (Sugar Land, Texas)--Happy New Year one and all; hopefully, it was rung in with aplomb.
Surplus. Not Surplus. 'Tis the question market participants seek to have answered. See January 5, 2021, news article -- Is a Glut Coming to Oil Markets?.
OPEC members, along with a handful of non-member states, are coordinated as a group dubbed OPEC+ to adjust production policy in an effort to stabilize crude oil markets. The group spent much of the latter half of 2021 fending off calls to add more barrels to the market than already planned, in an effort to control runaway crude oil prices.
While off late-2021 peaks, West Texas Intermediate, the U.S. benchmark for the price of oil, is still at multi-year highs. And while inflation in general is a looming concern, the increase in prices for consumer goods pales in comparison to the exponential rise in commodity prices.
According to the federal government, the cost for all consumer prices rose about 6% during the 12-month period ending in November. For energy commodities, inflation is running at a staggering 57.5%.
Yet OPEC at its regular meeting on Tuesday held to the regular plan to add another 400,000 barrels per day of crude oil to the market, starting in February. Reaffirm, reconfirm and reiterate were the main themes in the post-meeting press statement. Nothing seemed too terribly pressing for the producer group.
Earlier this week, in IIR's Crude & Products Market Scorecard, it was noted that, wait a minute, hold your horses, stop the proverbial presses, that Surplus (Glut) that was thought to be evidenced here in the New Year (first-quarter 2022) might (*gasp) not be.
OPEC+ expects the surplus on the oil market in the first quarter of 2022 to be 1.4 million barrels per day (bpd), or some 25% lower than it forecast in early December, Bloomberg reported on Monday, citing internal OPEC+ research a day before the group was set to announce its production policy for February.
Lower expected oil supply from non-OPEC+ producing nations was the key reason for a downgrade in the surplus estimate, according to Bloomberg. Expectations of strong demand this year have also resulted in a lower surplus forecast for the full 2022, according to the internal document, which was reviewed by the Joint Technical Committee (JTC) ahead of the OPEC+ ministerial meeting on January 4. OPEC+ now sees overall 2022 oil market surplus at 1.4 million barrels per day (BBL/d), down from an early December estimate of a 1.7 million-BBL/d oversupply.
Therefore, Mr. Market continues trending to the upside -- pressing once again toward $80 WTI, with 10 out of the last 13 trading sessions being positive.
Crude inventories continue to be drawn down, albeit less than expectations, though one does see product inventories increasing significantly as demand was less than expected as the year drew to a close. U.S. crude oil stockpiles fell last week while gasoline inventories surged by more than 10 million barrels, the biggest weekly build since April 2020, as supplies backed up at refineries due to reduced fuel demand at the end of the year, according to Reuters.
U.S. gasoline stocks jumped by 10.1 million barrels in the week to Dec. 31 to 232.8 million barrels, the Energy Information Administration said on Wednesday, compared with expectations in a Reuters poll for a 1.8 million-barrel rise.
Click on the image at right for the U.S. Energy Information Administration's (EIA) January 5 Weekly Crude Oil Status Report Analyst Survey.
And click on this image for Fundamental Analytics' Comments on the EIA Weekly Petroleum Status Report.
And one will have to keep an eye on what is happening in the financial markets. Most currencies will struggle to make any gains against the U.S. dollar in coming months, as monetary tightening expected from the Federal Reserve will provide the greenback with enough impetus to extend its dominance well into 2022, analysts said, according to Reuters. Financial markets are now expecting at least three U.S. rate hikes this year.
"There's been a lot of U.S. dollar strength of late, mainly driven by the widening interest rate differentials and inflation dynamics in the U.S. relative to other major markets like Japan and Europe," said Kerry Craig, global market strategist at JP Morgan Asset Management. "The fact the Fed is becoming much more hawkish and reacting to that by tapering much sooner than forecast a few months ago ... (and soon) start raising rates should support the dollar over the first part of the year," he said.
A strong dollar could place downward pressure on the price of oil if strong market demand does not materialize which brings us full circle back to the question: Surplus(Glut). Not Surplus.
Oil analysts have lowered their price forecasts for 2022 as the omicron variant poses headwinds to recovering fuel demand and risks a supply glut as producers pump more oil, a Reuters poll showed on Friday. The survey of 35 economists and analysts forecast Brent crude would average $73.57 a barrel in 2022, about 2% lower than $75.33 consensus in November. It is the first reduction in the 2022 price forecast since the August poll.
That being said, one will also need to remain ever aware of geopolitical tensions throughout the world and the role they will play in market prices as events unfold along the Russia-Ukraine border; in Libya; with Iran; and in the South China Sea with China, according to Forbes.
There are two prevailing views of next year's oil market: the International Energy Agency (IEA) and others expect supply to surpass demand and inventories to start rebuilding sometime soon, which will cap or weaken prices. Others, such as Goldman Sachs, point to strong demand and the possibility that OPEC+ won't be able to meet its production targets. I lean toward the former but can hardly pretend to be unconcerned about the potential for a raucous ride for next year's oil prices.
Partly, this stems from uncertainty about the impact of the omicron variant, as well as possible supply problems in some countries where workers are having trouble performing needed maintenance due to supply-chain issues. But the geopolitical environment could be even more vexing, even if it doesn't appear to be factored into the oil price, as of yet. A number of threats to the global economy--and maybe oil supply--are lurking in the background and need to be considered seriously. The oil ETF vix remains about 40, near the high end of the usual range, but certainly not elevated.
So welcome to the New Year and all that it portends. What we can say for certain is this will be another volatile year as the world continues to strive to recover from the COVID pandemic and stabilize economic and commodity markets greatly affected by this pandemic.
Geoffrey S. Lakings is the chief strategist at IIR Energy.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
Surplus. Not Surplus. 'Tis the question market participants seek to have answered. See January 5, 2021, news article -- Is a Glut Coming to Oil Markets?.
OPEC members, along with a handful of non-member states, are coordinated as a group dubbed OPEC+ to adjust production policy in an effort to stabilize crude oil markets. The group spent much of the latter half of 2021 fending off calls to add more barrels to the market than already planned, in an effort to control runaway crude oil prices.
While off late-2021 peaks, West Texas Intermediate, the U.S. benchmark for the price of oil, is still at multi-year highs. And while inflation in general is a looming concern, the increase in prices for consumer goods pales in comparison to the exponential rise in commodity prices.
According to the federal government, the cost for all consumer prices rose about 6% during the 12-month period ending in November. For energy commodities, inflation is running at a staggering 57.5%.
Yet OPEC at its regular meeting on Tuesday held to the regular plan to add another 400,000 barrels per day of crude oil to the market, starting in February. Reaffirm, reconfirm and reiterate were the main themes in the post-meeting press statement. Nothing seemed too terribly pressing for the producer group.
Earlier this week, in IIR's Crude & Products Market Scorecard, it was noted that, wait a minute, hold your horses, stop the proverbial presses, that Surplus (Glut) that was thought to be evidenced here in the New Year (first-quarter 2022) might (*gasp) not be.
OPEC+ expects the surplus on the oil market in the first quarter of 2022 to be 1.4 million barrels per day (bpd), or some 25% lower than it forecast in early December, Bloomberg reported on Monday, citing internal OPEC+ research a day before the group was set to announce its production policy for February.
Lower expected oil supply from non-OPEC+ producing nations was the key reason for a downgrade in the surplus estimate, according to Bloomberg. Expectations of strong demand this year have also resulted in a lower surplus forecast for the full 2022, according to the internal document, which was reviewed by the Joint Technical Committee (JTC) ahead of the OPEC+ ministerial meeting on January 4. OPEC+ now sees overall 2022 oil market surplus at 1.4 million barrels per day (BBL/d), down from an early December estimate of a 1.7 million-BBL/d oversupply.
Therefore, Mr. Market continues trending to the upside -- pressing once again toward $80 WTI, with 10 out of the last 13 trading sessions being positive.
Crude inventories continue to be drawn down, albeit less than expectations, though one does see product inventories increasing significantly as demand was less than expected as the year drew to a close. U.S. crude oil stockpiles fell last week while gasoline inventories surged by more than 10 million barrels, the biggest weekly build since April 2020, as supplies backed up at refineries due to reduced fuel demand at the end of the year, according to Reuters.
U.S. gasoline stocks jumped by 10.1 million barrels in the week to Dec. 31 to 232.8 million barrels, the Energy Information Administration said on Wednesday, compared with expectations in a Reuters poll for a 1.8 million-barrel rise.
And one will have to keep an eye on what is happening in the financial markets. Most currencies will struggle to make any gains against the U.S. dollar in coming months, as monetary tightening expected from the Federal Reserve will provide the greenback with enough impetus to extend its dominance well into 2022, analysts said, according to Reuters. Financial markets are now expecting at least three U.S. rate hikes this year.
"There's been a lot of U.S. dollar strength of late, mainly driven by the widening interest rate differentials and inflation dynamics in the U.S. relative to other major markets like Japan and Europe," said Kerry Craig, global market strategist at JP Morgan Asset Management. "The fact the Fed is becoming much more hawkish and reacting to that by tapering much sooner than forecast a few months ago ... (and soon) start raising rates should support the dollar over the first part of the year," he said.
A strong dollar could place downward pressure on the price of oil if strong market demand does not materialize which brings us full circle back to the question: Surplus(Glut). Not Surplus.
Oil analysts have lowered their price forecasts for 2022 as the omicron variant poses headwinds to recovering fuel demand and risks a supply glut as producers pump more oil, a Reuters poll showed on Friday. The survey of 35 economists and analysts forecast Brent crude would average $73.57 a barrel in 2022, about 2% lower than $75.33 consensus in November. It is the first reduction in the 2022 price forecast since the August poll.
That being said, one will also need to remain ever aware of geopolitical tensions throughout the world and the role they will play in market prices as events unfold along the Russia-Ukraine border; in Libya; with Iran; and in the South China Sea with China, according to Forbes.
There are two prevailing views of next year's oil market: the International Energy Agency (IEA) and others expect supply to surpass demand and inventories to start rebuilding sometime soon, which will cap or weaken prices. Others, such as Goldman Sachs, point to strong demand and the possibility that OPEC+ won't be able to meet its production targets. I lean toward the former but can hardly pretend to be unconcerned about the potential for a raucous ride for next year's oil prices.
Partly, this stems from uncertainty about the impact of the omicron variant, as well as possible supply problems in some countries where workers are having trouble performing needed maintenance due to supply-chain issues. But the geopolitical environment could be even more vexing, even if it doesn't appear to be factored into the oil price, as of yet. A number of threats to the global economy--and maybe oil supply--are lurking in the background and need to be considered seriously. The oil ETF vix remains about 40, near the high end of the usual range, but certainly not elevated.
So welcome to the New Year and all that it portends. What we can say for certain is this will be another volatile year as the world continues to strive to recover from the COVID pandemic and stabilize economic and commodity markets greatly affected by this pandemic.
Geoffrey S. Lakings is the chief strategist at IIR Energy.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
