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Still we are not out of the woods

Crudenow March 8th 2017

The graph above shows the high level of crude oil inventories in USA now .The second graph shows crude oil production in USA from jan 2016 till now which shows that usa Production is beginning to pick up again

In the presence of a near panic level of petroleum inventories, acting as a buffer, the crude oil prices are determined by the “ Market sentiment or as we always say on the screens of the futures market.

Since Nov 2016, when “OPEC and Non-Opec” countries agreed to freeze their production levels. the crude oil market settled at $55 per barrel, with less volatility . But ,still we are not out of the woods yet.The market now is in Conatango, that is to say, more and more crude are added to inventories in the expectations of price increases , which puts the market at the mercy of the HFT(high frequency traders )

Iran has already warned that Oil Prices over $55 per barrel is harmful to OPEC (Click here) ....This is understandable, because Iran takes seriously President Trump threat to tear “The Iran - Deal” and hit Iran with new Sanctions . Therefore Mr Zangenha , minister of oil of Iran is correct to think that low crude oil prices will undermine President Trump‘s energy policy of encouraging domestic capital investment in energy . For President trump’s policy to succeed, high crude oil prices of more than $65 per barrel are necessary as a prerequisite.

Iran is already worried that crude oil prices above $55 encouarges the invetors in crude and gas production in USA .Effectively, the Vienna accord and production freeze are no longer necessary and defending "The Market Share" must become the prime target for OPEC , should crude oil prices start to increase above $ 55.Mr Zangenh pointed out that production in his country reached to 3.9 mb/d in February.

However, Still, foreign firms have so far made little inroads into the country despite the lifting of sanctions. U.S. President Donald Trump's tough stance against Tehran has made foreign firms more cautious to invest in the energy sector in Iran

While Saudi Arabian Energy Minister Khalid Al-Falih said that the kingdom was willing to cut Production even more than was required >and wants to boost investment in US energy."President Trump has policies which are good for the oil industries, and I think we have to acknowledge it... He has steered away from excessively anti-fossil fuels, unrealistic policies," Falih told the BBC. This in contrast to earlier statement by Saudi Prince Mohamed, during Doha Meeting , On April 17th ,2016 We will sell at any opportunity we get(click). said the Prince , defending the kingdom‘s market share strategy.

While In USA,the focus is on its home opportunities and high on list are the shale gas fields , which started initially without the majors, but now the majors like Exxon have acquired new position , and bought acreages… and already decided to increase capital expenditure in Short-Cycles . We know that the Shale Gas game started without the majors.Now after the price fall, the major will concentrate on the short cycle investment expenditure very carefully. Recently Exxon have bought not less than 225000 acres but the fear index is too high because the potential for another price shakeout is also too high.

We also should not ignore the fact that the new US administration has already declared that Decarburization is not a priority….. this should make the frackers happier specially if crude oil prices are above $70