Gathering geopolitical storm

May 23 2019

Not for some time has the geopolitical situation in many of the worlds largest crude providers been so precarious.

Not for some time has the geopolitical situation in many of the worlds largest crude providers been so precarious.

We still don’t know the rationale behind the attack on four tankers at Fujairah and last week’s drone attacks on Saudi Arabian pumping stations.

With supply concerns in Iran, Libya and Venezuela already causing headaches and continued uncertainty over Russian crude shipments via the Druzhba pipeline, could potential supply disruptions put further pressure on prices? Gibson Shipbrokers asked in a report.

The latest IEA monthly oil report said that supply concerns could be offset by other producers who have indicated that they are willing to replace lost barrels (particularly Iranian) given the US waiver programme has ended.

Iranian seaborne exports in April dropped by over 500,000 barrels per day from the previous month to just over 1.2 mill, down over 1.75 mill barrels per day from the same period last year.

IEA figures also showed that Venezuela is now producing under 850,000 barrels per day, the lowest figure recorded in the past 20 years.These large falls in production from Iran and Venezuela were briefly offset by greater output from Nigeria and Libya, despite ongoing unrest in both countries. However, no co-ordinated effort has been made to replace Iranian barrels thus far.

The figures highlighted that OPEC alone has 3.19 mill barrels per day in spare capacity, of which 2.21 mill is Saudi crude. However, despite the turmoil that seems to be escalating globally, crude prices have remained relatively stable, with Brent around $73 per barrel. However, the spare supply currently available is located where most of the geopolitical tensions are.

In addition to OPEC supply being tight, Non-OPEC production fell 360,000 barrels per day in April to 63.6 mill.

Despite this, Brazilian and US production increased. Brazil’s production went up to a record level of 2.8 mill barrels per day, with China being the main beneficiary. Forecasts have put Brazilian production at 3.2 mill by the end of this year.

Strong growth from the US will also be needed in the second half of 2019 to ensure the market remains adequately supplied in the absence of any OPEC increases. With supply issues coming from some of the OPECs largest producers and non-OPEC supply growth predicted to slow to 1.8 mill barrels per day in 2Q19, production concerns could continue to drive up prices throughout the year.

Backwardation in crude futures has increased significantly, with front month prices $3.4 per barrel higher than for six months out, according to the ICE Brent contracts.

All eyes will be on the forthcoming OPEC meeting, scheduled for next month. Regardless of the outcome, current tensions in the Middle East will do little to comfort market participants. As it stands, the markets seemed to be teetering on a knife edge, Gibson concluded.

Previous: End May movers

Next: Another Greek tanker indicted for falsifying records

June 2020

low carbon strategy - digital tanker market models - battery explosions - better catering onboard - challenges of ballast installations