AUS
NZ
UK
CA
USA
FRA
GER
ESP
ITA
NLD
PRT
SWE
GRC
IND
POL
BRA
ZAF
RUS
CHN
UAE
The production cut of 0.5 million barrels a day by the OPEC members at the 177th Annual meet is seeming to be supporting the crude oil prices, which is showering Christmas gifts on the oil and gas bulls.
Many oil-driven stocks such as Origin Energy Limited (ASX: ORG), Beach Energy Limited (ASX: BPT), Santos Limited (ASX: STO) are under a bull run over the fast recovery in crude oil prices and east coast gas crisis.
Also Read: ASX-Listed Oil & Gas Stocks- A Perfect Buy For Short-term Gains?
The benchmark Brent crude oil spot rose from USD 56.69 a barrel (intraday low on 3 October 2019 to the present high of USD 67.01 (as on 19 December 2019), which underpinned a price appreciation of over 18 per cent.
Apart from the deep production cut by OPEC, which took the overall production cut to 1.7 million barrels a day, the ease in a bilateral trade dispute between the United States and China is also fanning the oil prices. Many global economic indicators are now showing promising recovery post a deep stall, which is also supporting the prices of commodities such as copper, which is directly linked to economic recovery.
For example, the industrial production y/y in China, which reflects the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities surged to 6.2 per cent in November, against its previous value of just 4.7 per cent.
Likewise, the monthly employment figures in Australia surged with a change of 39.9k in November, as compared to its previous contraction of -24.8k, and the unemployment rate slipped by 0.1 per cent to stand at 5.2 per cent for the same month.
The production cut, along with improved economic indicators, which is reflecting early signs of recovery, is supporting the crude oil prices.
Copper-to-Gold Ratio and Crude Oil
Copper-to-Gold Ratio and LCO Daily Chart (Source: Thomson Reuters)
Crude oil prices are currently aligned with the copper-to-gold ratio, which further suggests that oil prices are currently demand-driven; however, both copper and crude are baking in the recent strike at the Escondida copper mine- operated by BHP Group Limited (ASX: BHP) and production cut by OPEC, respectively.
While the soaring oil prices could be good news for oil-related stocks, the coming quarters of 2020 could be really challenging over the anticipated surge in oil production from the United States and non-OPEC nations and opaque demand, as initially forecasted by the Energy Information Administration (U.S. EIA).
To Know More, Do Read: EIA Forecasts on the Brent Crude Oil; Crude Oil Prices Likely to be Demand-driven Ahead?
The Recent Forecast on Oil By EIA
· The United States Energy Information Administration anticipates crude oil prices to average at USD 61 a barrel in 2020, down by USD 3 per barrel against the average price of USD 64 a barrel in 2019 amid a forecasted rise in global oil inventories during the first half of the year 2020.
· The department also believes that the OPEC members would continue the production cut till the end of the year 2020 to far reach the deadline of March 2020, as determined by the OPEC during the annul meet on 6 December 2019.
· EIA anticipates the OPEC production to average at 29.3 million a day in 2020, and the United States production to average at 13.2 million barrels a day in 2020, up by 0.9 million barrels as compared to the average production in 2019.
OPEC Reuters Oil Survey (Source: Thomson Reuters)
United States to Best OPEC Efforts?
Saudi Arabia- the oil kingpin is currently pulling in efforts to dictate the oil prices in the market amidst of slightly off-demand; however, the United States is currently up in the game to counter such efforts, thanks to the higher efficiency of its oil rigs and well-level productivity.
The domestic oil production in the United States is on the surge despite a lower number of rigs due to improved efficiency of the existing rigs.
As the above chart reflects, the oil production in the United States is inching up, which in turn, is meeting the domestic oil demand; and, the higher exports is somewhat supporting the global oil demand, which is keeping the OPEC’s effort to dictate the oil prices in check.
Apart from the United States, other non-OPEC members are also scaling oil production, which is also a scalpel to the efforts of the oil cartel to dictate the oil prices in the global market.
Albeit, the overall oil exports from the United States remain high, the recent weeks have witnessed a decline in crude exports from the nation, which coupled with the OPEC production cut might have played some role in the rise of oil prices.
What to Look Ahead?
· Check of Economic Indicators
The economic indicators could assist investors in gauging the prevailing economic conditions in the market, which usually impacts the movement in crude oil prices. Many indicators for December such as Manufacturing PMI (U.S.), Consumer Confidence (U.S.), Building Approvals (AUS), Trade Balance (AUS) are yet to reveal, which could further impact crude oil prices.
· Check of U.S. Crude Oil Figures
As emphasised above, the United States oil trades are causing ripple effects in the oil market, and the weekly trade figures should be under investors’ lens to reckon the direction for oil ahead.
· Watch for Trump Tweets
Commodity markets across the globe are currently ignited as the demand is providing cushion, as traders remain optimistic over the trade relationship between the United States and China. However, time to time, many tweets from the United States president have impacted the commodity market, and the commodity stakeholders should continue to closely “follow” the Trump Tweets.
Also Read: Commodity Kindles as Trade Ease Surfaces; Is the Rally Sustainable or Is it on a Weak Footing?
Disclaimer
This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.
