Oil trading prices declined on Tuesday following data showing that US inflation remained high last month, with OPEC keeping its forecast for annual demand unchanged.
Brent crude futures lost 55 cents to $82.81 a barrel by 1339 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell 67 cents to $78.45 a barrel, with the latest developments reflecting the slowdown in the oil trading market.
Oil trading price: Strong pace
US producer price data showed that producer prices rose in April at a surprisingly strong pace as costs of services and goods jumped unexpectedly, suggesting that strong inflationary pressures persisted into the early part of the second quarter.
Oil Price News: How Market Shifts Could Boost Your Trades!
Even with the stifling high borrowing costs in the US keeping interest rates at last year’s July level to tackle ‘the persistence of inflation’, Wednesday’s data on the US consumer price is expected to exert acute pressure on when a rate cut should be considered, since a cut would boost economic growth, and in turn support oil demand.
Oil trading price: Trading prices go higher
Oil trading prices were higher yesterday but have been stable for the past week.
Meanwhile, on the same day, the Organization of the Petroleum Exporting Countries (OPEC) reiterated it had expected much higher oil demand growth this year, suggesting the world economy could perform much better than expected.
In its monthly report, OPEC forecast the oil demand to rise by 2.25 million bpd in 2024 and by 1.85 million bpd in 2025, an indication that oil prices could push higher in trading.
Again, attention focuses on wildfires in remote western Canada, which threaten the country’s oil supply.
On Monday, firefighters stepped up their efforts in three fires, one in British Columbia, two in Alberta, close to the centre of Canada’s oil sands industry.
Oil trading price: OPEC expectations
On Tuesday, OPEC stuck to its upbeat expectations for strong global oil demand growth in 2024, and shifted to a weighted-average calculation of the world’s forecast demand for OPEC+ crude, which again emphasises that OPEC+, comprised of OPEC and its cohort of rivals such as Russia, is now the centre of gravity of the market.
Its monthly report forecasts global oil demand growth of 2.25 million barrels per day (bpd) in 2024 and 1.85 million bpd in 2025.
These projections have not changed since February.
Oil trading price: Oil exports
That was when the organisation of oil exporting countries revised up its outlook for oil demand to match a similar upward leap in forecasts by the International Energy Agency and the US Energy Information Administration in January.
The expectation is that a vote in June 1 OPEC+ meeting will extend voluntary oil output cuts into the second half of 2022.
The current cut is as much as 2.2 million bpd, running until end-June.
Some OPEC+ sources seem to have tipped their hand about a possible extension to the cuts.
OPEC declared its bullish view: ‘Despite certain downside risks, the positive momentum observed since the beginning of the year could lead to a higher potential for a more sustainable global economic growth in 2024 and beyond,’ even though the world economy is already experiencing record inflation.
Oil trading price: Positive market view
This positive spin can affect oil-trading prices, by altering the market’s expectations.
This rift in prognostication reflects differing views on the pace at which the global economy decarbonises.
The International Energy Agency (IEA), which represents industrialised countries and expects oil demand to peak by 2030, forecasts that next year will see demand rising by 1.2 million bpd.
In contrast, OPEC itself expects continues increases in oil consumption through at least the next two decades, and has not forecast a peak in oil demand.
Oil trading price: Strategic change
In a major strategic change, OPEC decided to stop publishing its calculations of demand for its crude – a proxy for market strength – and instead focus on demand for oil from the broader OPEC+ group.
The action was aimed at building a sense of unity in OPEC+ and, the statement added, ‘to facilitate the understanding of market developments, and remove any room for speculative interpretations and misinterpretations’.
This was another manifestation of the growing importance of OPEC+ to global oil markets: the Declaration of Cooperation (DoC) that formed the basis of their cooperation from 2016.
OPEC latest data reported production of 26.58 million bpd in April 2014, down slightly from the month before. DoC demand estimates for 2024 are 43.2 million bpd.
Oil trading price: Robust demand
Oil trading prices remain heavily influenced by robust demand.
BIG Holding, a Kuwaiti company involved in human resources and real estate services, said Tuesday it would offer a 30% stake on the local stock exchange in the first potential listing in Kuwait in about two years.
The final price to be paid for a stake, the first initial public offering of a company in the oil trading hotspot in Istanbul, will be fixed through a bookbuilding process taking place from 19 to 23 May, with the shares to be traded on the Kuwaiti stock exchange next month.
Several companies have launched initial public offerings (IPOs) in the Gulf in recent years, in a bid to develop capital markets, encourage private sector development and attract investment – all factors that have an impact on how much oil is being traded and how.
This year has seen several go-ahead for private companies going public, including the Saudi Arabian flour mills company Modern Mills and the UAE supermarket franchisee Spinneys.
Oil trading price: Aramco, SMASCO prices
BIG Holding and SMASCO, both based in Saudi Arabia, are planning to go public soon too.
The best way for the private sector to expand is for entities to list on the public markets and boost the stock market in that country. ‘That’s the trend in the Gulf generally.’ – Abdulrahman Al Khannah, CEO of BIG Holding.
Founded in 1991, the BIG Holding group offers manpower solutions and manages large-scale real-estate projects, with build-operate-transfer and public-private partnerships deals among its contracts.
Its major clients include US army contractors and the Kuwait Oil Company, a pillar of regional oil-pricing stability.
Oil trading price: Upcoming IPO
Al Khannah stressed that the IPO will help to diversify the shareholder base of the company from the country’s stock exchange while encouraging growth in its operational countries.
In mid-December to mid-January, BIG Holding held preliminary roadshows that attracted more than 40 investors in Kuwait, Saudi Arabia, Dubai and London, including institutional investors and funds.
The company had an average growth of 12.6% in terms of revenues over the past three years, and a normalised core profit margin of around 30.4%.
The proceeds of the offering will be distributed among the selling shareholders.
National Investments Company and EFG Hermes UAE are the joint coordinators.
Oil trading price: Big trading opportunity
While global market conditions have not been great – only $1.2 billion in IPO proceeds was raised in the Middle East and North Africa (MENA) during the first quarter of this year, down 66% from the previous year – the volatility in the price of oil and the patterns of investment seen across the region are core to the current environment.
Chevron (CVX.N), one of the biggest oil companies in the US, recently became the most shorted stock in the country, knocking Tesla (TSLA.O) off the top, short-sellers betting against a backdrop of falling energy prices, according to an April report from the data and tech firm Hazeltree.
The Hazeltree Shortside Crowdedness Report stands out, in part, because it uses global stock borrowing data from more than 700 asset management funds to track the stocks that short-sellers are piling on (or bailing out of).
Listed here for the first time, Chevron was also named the most shorted large-cap stock in the US.
Chevron dropped to second place after three months at the top, with short selling topping $500 million in April, pushing its total short interest up to about 9%, from about 7% the prior month – an indication of increased bearishness over oil trading.
Yet despite beating Wall Street analysts’ expectation in its first-quarter results, Chevron has been hurt by weakened energy prices and reduced refinery margins over the past year.
In addition, a glut of natural gas and a warmer-than-usual winter helped depress natural gas prices, further hurting the company’s bottom line.
Nevertheless, Chevron’s shares rose 1.38% in April, lifting its overall market value by about $5 billion, according to LSEG Datastream, even as the New York Stock Exchange composite index, which includes Chevron, fell about 3% over the same period.
Even some hedge funds tracked by Goldman Sachs radically changed tactics in that week before 10 May, shedding many of their long and short positions, according to an update this week from the bank’s prime brokerage.
The way prices in oil trading are set and investment strategies are formed is evolving.
Chevron has yet to comment on the trades, and Tesla has yet to return the message we left asking whether the company still ranked in the top 10 on the short list.
Converted into fuels, its profit has touched its lowest level in seven months.
Asian refiners are therefore offloading themselves from the more expensive Middle East grades that were bought at the height of the region’s oil pricing success, and replacing them with lower-priced crudes from the Americas.
By then, these factors – along with the prevailing market tinge of bearishness brought about by relatively high oil trading prices set by Saudi Arabia, the largest exporter and price-setter for most of the crude shipped out of the Middle East, and sluggish demand for key oil-derivative products such as diesel, a major component of the transport and other industrial engines – would have left its mark on the oil sector.
The crack (the margin for turning Dubai crude into kilos of fuels in an average Singapore refinery) stood at $2.27 a barrel on Monday, down from $2.69 a barrel on 10 May and the lowest since 20 October.
It’s a 77% decline from the peak of $9.91 a barrel on 13 February 2024.
The refining squeeze has come with a sharp rise in crude oil prices.
Crucially, Brent crude futures, the global benchmark, soared from a six-month low of $72.29 a barrel on 13 December to a high of $92.18 on 12 April before easing to $83.45 by Monday.
Oil trading prices have risen faster than the highs reached in third quarter of last year, and the recent rise is causing headaches for refiners in Asia as Saudi Arabia jacked up its official selling prices (OSPs).
For June-loading cargoes, Saudi Aramco raised the OSP of its flagship Arab Light grade to a premium of $2.90 a barrel over the Oman/Dubai average from $2.00 in May.
As a result, Asian refiners are slowing down the amount of Saudi crude they buy. Saudi crude imports to Asia in April were at 4.88 million barrels per day (bpd), down from 5.07 million bpd in March and from 5.52 million bpd in February.
