The optimistic momentum continued in the oil markets this week with prices holding strong. OPEC’s efforts are paying off and the sense of rebalance looks real.
In early trading on Friday, Brent crude was priced above US$64 with WTI holding above US$57 a barrel.
The oil price is experiencing its strongest price in two years with many analysts predicting further strengthening by the end of the year.
The stock markets performed well this past week also and global economic demand and performance seems robust.
Geopolitics priced in
Some geopolitical uncertainty has also been priced in as instability in the Middle East becomes more prevalent.
US investment bank Goldman Sachs warned of greater volatility in weeks to come given the current political tension in the Middle East, particularly with the anti-corruption sweep in Saudi Arabia and the ongoing regional escalation with Iran.
That would impact the oil price to the upside but the bank also added that rising US shale production could have an impact to the downside.
Rising stockpiles but fewer rigs
Last week saw an increase in crude stockpiles but the US oil rig fell by 8 rigs to 729, according to the Baker Hughes report.
Commerzbank issued a note to clients saying it believes that “OPEC will succeed in tightening the market to a sufficient extent by extending its production cuts.”
The bank says this is driving strength in the market these weeks.
Emirates support continuation OPEC cuts
This week the UAE Energy Minister Suhail al- Mazroui said he supported a continuation of the cuts.
The Minister will host one of the world’s biggest oil conferences and exhibitions in Abu Dhabi next week. ADIPEC will attract leaders, ministers and CEOs in the global oil and energy sector to discuss current trends.
The OPEC Secretary General, Mohammad Barkindo will be among the speakers at ADIPEC next week after this week releasing the OPEC World Oil Outlook 2040.
OPEC sees demand rising
The report said OPEC expects global energy demand to increase by 35 percent by 2040, driven mainly by the expansion and growth in developing countries.
OECD growth in oil demand has been flat and is expected to remain around 0.1 percent, with Eurasia at 0.9 percent.
Growth from developing countries is expected at around 1.9 percent per year until 2040.
Urbanization and an increase in population is driving the expected growth with India and China leading the way.
Huge new Mexico discovery
Mexico announced a huge oil find this week with prospects of 350 million barrels of oil reserves in the Eastern state of Veracruz.
This is the biggest onshore find in 15 years as the state oil company Pemex opens up and expands its exploration and production focus.
The country will hold auctions for 29 deep water plots at the end of January, with great interest in exploring more than 4 billion barrels of oil coming from the international oil companies.
Mexico was invited to join the International Energy Agency as the IEA expands its membership to emerging countries.
The IEA held its 2017 Ministerial Meeting in Paris last week.
The ongoing political and anti-corruption clean-up in Saudi Arabia appears to be priced into the market after an initial price rise midweek.
What’s more concerning to the region is the external tension with rival Iran that analysts fear could deteriorate in coming weeks.