Oil trading on Iran tensions, inventories secondary

On the geopolitical front the market remain concerned that the evolving situation between Iran, the West and other Mid-East oil producers is going to result in some sort of supply disruption in the future. The market is certainly pricing in a loss of supply risk premium at the moment. The EU is moving closer to enacting an embargo of Iranian crude oil purchases by EU member countries. The meeting is to be held on Jan. 23. Again you know my view that I believe there will is a very low probability of any supply disruption associated with Iran and I do not think Iran will even attempt to block the Straits of Hormuz...let alone achieve that objective for any length of time.

The International Energy Agency (IEA) just released their monthly Oil Market Report. Following are the highlights from the report.

Oil markets began the New Year confronting a host of supply issues, not least a pending EU ban on Iranian oil imports and retaliatory threats from Tehran to close the Strait of Hormuz, through which flows roughly one-third of world’s oil exports. Oil prices jumped $4-$5/bbl on the reports, but eased on mounting Eurozone debt issues. Brent was last trading near $112/bbl and WTI at $100.50/bbl.

Clear signs of economic weakness tipped global oil demand into a declining year-on-year trend at the end of 2011, down 0.3 mb/d in 4Q11, its first such drop since the tail-end of the credit crunch. The significantly lower starting point has accordingly trimmed global oil demand growth to 1.1 mb/d for 2012 (from 1.3 mb/d previously).

Non-OPEC supply fell by 140 kb/d to 53.2mb/d in December, as rising North Sea output only partially offset a seasonal decline in biofuels and lacklustre supply from the FSU. Middle East unrest and other unplanned outages limited annual growth in 2011 to only 45 kb/d. A rebound to 340 kb/d growth is expected for 1Q12, and 1.0 mb/d for 2012 overall, as non-OPEC output averages 53.7 mb/d.

December OPEC crude output rose by 240 kb/d to 30.89 mb/d, the highest in more than three years, on a rapid recovery in supplies from Libya, and lesser increases from Saudi Arabia and the UAE. OPEC in December raised its output target to 30 mb/d for 2012, close to OMR projections for the ‘call on OPEC crude and stock change’.

OECD industry oil inventories rose by 4.1 mb to 2 647 mb, or 57.5 days of forward cover, in November, led by North American and European gasoline. Stock levels nonetheless remained below the five-year average for a fifth consecutive month. December preliminary data show a seasonal 23.6 mb draw in OECD industry stocks.

Global refinery crude runs are revised down by 250 kb/d and 170 kb/d for 4Q11 and 1Q12, to 74.8 mb/d and 74.9 mb/d, respectively. Weak economic growth and mild weather led to global demand contraction in 4Q11. A weakening economic outlook and recent refinery shutdowns in Europe curb early-2012 activity levels.

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