Being careful of what Hedge Funds wish for

So it is that OPEC has moved its ministers meeting, and the OPEC/non-OPEC from April 17/18 to June 25/26, but the Oilholic decided to come to the Austrian capital anyway given that other 'crude' meetings could not be moved, and because Vienna is lovely in the spring anyway!

While spring might be in the air in Vienna, a bit of craziness has surfaced in the Oil market trading sphere. Yet again, no sooner has Brent crossed $70, chatter of three-figure crude prices is again rearing its head. Here's the Oilholic warning from very recent history (via Forbes); and why caution is merited.

There is nothing on the horizon to be overtly bullish about the oil market – bearish variables (i.e. China, President Donald Trump's trade salvos, Brexit, German slowdown and changing consumption patterns haven't materially moved yet) and bullish quips based on geopolitics (i.e. Libya, Venezuela and Nigeria) matter but are being countered partially, if not wholly, with sentiment around rising US production.

Replicating a favourite pastime of the inimitable former Saudi Oil Minister Ali Al-Naimi, on this sunny day in Vienna - I could think of nothing better than a brisk walk down the city's Ring Road from the Intercontinental to Rathaus, before the flight home : ) pic.twitter.com/xyEn9IQd9F

— Gaurav Sharma (@The_Oilholic) April 19, 2019

Few in Vienna, think an oil price spike is on the cards, having had three days of deliberations over, let's face it more than three friendly beers. That sentiment is echoed by both heavy sour and light sweet physical traders the Oilholic has spoken to in Shanghai and Rotterdam. 

Not many believe OPEC wants three-figure prices; and even if they do, more light sweet American crude is hitting the market heading to Asia. Yours truly has long maintained that we are stuck in a boring oscillation between $60-80 per barrel prices; a predictability that hedge funds find boring for very different monetary reasons. Let's leave it at that!

As for OPEC, it is not going to move until Trump decides on if and what kind/level of waivers he is going to grant importers of Iranian crude or not. That and balancing Russia’s concerns are probably the primary reasons behind postponing its ministers' meeting. That's that from Vienna until June.

Interspersed between crude meetings, the Oilholic also found time for a mooch about Vienna's Ring Road on a sunny afternoon, starting from the Intercontinental Hotel to the Rathaus up to Karlskirche; partially replicating the past-time of Ali Al-Naimi, the inimitable former Saudi Oil Minister. Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2019. Photo © Gaurav Sharma, 2019

Crude markets post Brexit: Keep calm & carry on

Right after the OPEC summit, we went into the home strait of the UK’s June 23rd referendum on its membership of the European Union, which has resulted in a Brexit or to put it more blandly – Britain’s exit from the EU.

 

It drained the life out of talking about anything else, or writing about anything else or blogging about anything else. So please accept the Oilholic’s apologies for not responding on wider ‘crude’ affairs via this blog for much of the month.

 

The deed is done; the British public voted 52% to 48% in favour of exiting the European Union, and to quote one departing EU official – "what has been done cannot be undone." The development followed a predictable market kerfuffle, with some comparing or at least attempting to compare its aftermath to the Lehman Brothers collapse. As the Oilholic said on a recent broadcast, serious though it might be, it is not quite on that scale for the oil markets.

 

Oil will continue to lurk around the $50 per barrel level and struggle to cap that over the next six months, and much of it would have little direct connection to the Brexit vote. On the eve of the vote, yours truly looked at FX, oil and gold plays via a Forbes column, and did an oil market impact assessment or a crude Brexit post mortem exactly a week on from the outcome of the result.

 

Brexit’s only contribution has been to add to the prevailing market sentiment that oil demand growth will not quite fire up. Most demand growth projections, for instance those of the IEA and OPEC, are in the 1.2 – 1.4 million barrels per day (bpd) range. The Oilholic suspects come the end of the year, even the lower end of that range might not be matched.

 

Brexit and the uncertainty in Europe would have some impact, but much of the oil market is reliant on emerging market demand and its direction should be the primary cause for concern. Europe accounts for only 15% of global trade. The direction of global trade and manufacturing is eastwards, by default so is the direction of the oil market.

 

Furthermore, there is still plenty of oil around according to physical traders. What was one of the biggest oil gluts of all time last year, will not be resolved in a matter of months. The Oilholic has always maintained that the oil market will not rebalance until much later into 2017 and the oil price will stick around $50 level until December.

 

Given that context, Brexit is just another crude problem, but not the only problem. Keep calm and carry on!

 

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© Gaurav Sharma 2016. Photo: Oil rig in South Asia © Cairn Energy.