Crude Oil Witnesses Worst Weekly Hit Since September 2019; Trade Deal Won’t Remove Tariffs- Says Steven Mnuchin

Crude oil prices were about to reach a 4-month high of USD 71.95 per barrel (high in September 2019), but the market overoptimism around the phase 1 trade deal between the United States and China was quickly traumatised by the United States Treasury Secretary Steven Mnuchin- who mentioned on a media platform that trade tariffs would be in place irrespective of a positive outcome from the trade deal.

Crude oil prices responded negatively prior to that in the wake of surmounting oil production across the United States and towering supply capacity of non-OPEC oil-producing countries.

Brent crude oil futures on the International Commodity Exchange (or ICE) tumbled from its recent high of USD 71.75 per barrel (intraday high on 8 January 2020) to the present level of USD 64.34 (as on 15 January 2020, 3:02 PM AEDT 1:02 PM AWDT), which marked a fall of ~10.33 per cent.

Also Read: Crude Surges Over Fundamental Shift in Oil Trades; Demand and Supply Remain Muted

U.S. Inventory Change (excluding SPR) (Source: Thomson Reuters)

The crude oil inventory across the United States (excluding Strategic Petroleum Reserve) fell by 11.463 million barrels for the week ended 27 December 2019 as a result of higher exports and lower imports, which indicated a slight shift in fundamentals of the oil market, and reflected that the United States is back with its higher domestic production in the market, after a slower exports for the week prior to that.

After a sudden spike in exports for the week ended 27 December 2019, the export retraced down to nominal levels (which is also high as compared to early 2019) for the week ended 3 January 2020. The spike across the export with lower net imports and steady domestic production once again reflected that the United States is ready to counter any efforts from the oil Kingpin Saudi Arabia to elevate oil prices in the global market.

U.S. Oil Trade Figures

The net imports plunged to 1,890 thousand barrels per day for the week ended 27 December 2019, post recovering to nominal levels (lower than early 2019) to stand at 3,666 thousand barrels per day for the week ended 3 January 2020. The plunge in imports below 2019 low of 2,174 thousand barrels per day (for the week ended 18 October 2019), reflected that there is now a shift across the trade figures, which the market incorporated in its price actions, and crude oil prices plunged in the market.

While the net imports fell, the overall exports of oil from the United States surged for the week ended 27 December 2019 to stand at 4,462 thousand barrels a day, before cooling-off to the nominal level of 3,064 thousand barrels a day (higher than early 2019) for the week ended 3 January 2020.

While the United States oil trade figures are just an easy route of tracking the movement in oil prices, there are plenty of other factors playing a role in keeping lid above the oil price. For example, though Russia consented with Saudi at the 177th Annual meet of OPEC to take the overall production cut to 1.7 million barrels per day, the state agencies in Russia are very clear that Russia would not support the production cut for long in 2020 in order to protect the market share of state-owned oil companies, which at present, are facing tough challenges from the oil companies in the United States, who are drilling at full capacity and inundating market with more than required supply.

To Know More, Do Read: OPEC To Hold 177th Annual Meet; Russia The Potential Game Changer?

How Were Prices Dictated Until Now?

Daily LCO Chart (Source: Thomson Reuters)

On 27 December 2019, crude oil prices demonstrated an early sign of a correction. The trade volume on 27 December 2019 to 3 January 2020 remained weak, and the 14-day Relative Strength Index touched the overbought level of 70.0. Despite that, the market remained optimistic over the phase 1 of the trade deal (which is slated for today), and the prices rose.

However, the fundamentals coupled with the comments from Steven Mnuchin unfolded in the market, and crude oil prices took a hit. While supply remains robust across the global front, many industry experts believe that the crude oil prices would largely be dictated by demand, which at present, is deriving its future outlook from the phase 1 of the trade deal.

In the status quo, crude oil prices are moving as expected by the United States Energy Information Administration (or EIA) in its short-term energy outlook.

To Know More, Do Read: EIA Forecasts on the Brent Crude Oil; Crude Oil Prices Likely to be Demand-driven Ahead?

Key Takeaways

  • Crude oil witnesses worst weekly hit since September 2019 over a significant shift in the U.S. oil trade figures.
  • Prices cracked over 10 per cent in just a few days as higher exports (lower imports) across the U.S., and comments from Treasury Secretary Steven Mnuchin unfolded.
  • The net imports plunged to 1,890 thousand barrels per day for the week ended 27 December 2019, post recovering to nominal levels (lower than early 2019) to stand at 3,666 thousand barrels per day for the week ended 3 January 2020.
  • The overall exports of oil from the United States surged for the week ended 27 December 2019 to stand at 4,462 thousand barrels a day, before cooling-off to the nominal level of 3,064 thousand barrels a day (higher than early 2019) for the week ended 3 January 2020.
  • There are plenty of other factors playing a role in keeping lid on the oil prices.
  • Geopolitical Saga- While Russia consented with Saudi at the 177th Annual meet of OPEC to take the overall production cut to 1.7 million barrels per day, the state agencies in Russia are very clear that Russia would not support the production cut for long in 2020 in order to protect the market share of state-owned oil companies, which at present, are facing tough challenges from the oil companies in the United States, who are drilling at full capacity and inundating market with more than required supply.
  • In the status quo, crude oil prices are moving as expected by the United States Energy Information Administration (or EIA) in its short-term energy outlook.

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