New York (CNN Business)Oil prices suffered an historic collapse overnight after Saudi Arabia shocked the market by launching a price war against onetime ally Russia.

OPEC and non-OPEC oil producers failed to agree on an extension as well as further oil production cuts on Friday. This means that when the current OPEC+ deal to cut expires this month, there are no restrictions on production on any oil producer and uncertainty is therefore extremely high as regards production levels from April. Hopes ahead of Friday’s meeting were that the OPEC+ group of oil producers would agree on a 1.5 mio. barrels per day oil production cut – so a no-deal is therefore highly bearish for oil prices.

Combined with continued escalation in coronavirus outbreaks and preventive measures by governments and companies around the world, the scene is set for further uncertainty in both the oil market and financial markets.

Over the weekend, Chinese trade activity data was released, showing drops in both imports and exports – this morning, Japan’s GDP came out lower than expected. ECB monetary statement is released on Thursday.

(Source: Global Risk Management)

U.S. Crude Oil WTI Futures were down 0.6% to $61.03 by 1:18 AM ET (05:18 GMT). International Brent Oil Futures dropped 0.7% to $70.48.

Crude prices fell as much as 3% on Wednesday after data from the U.S. Energy Information Administration (EIA) showed that crude inventories rose by 4.7 million barrels last week, versus expectations for a decline of nearly 600,000 barrels.

Just a week ago, crude inventories had risen by 5.4 million barrels.

Gasoline and distillate inventories also rose last week, the EIA data showed, suggesting that demand from consumers was also weak.

“Rising inventories and a slowdown with refined product demand could suggest we could see further pressure (on prices),” said Edward Moya, senior analyst at futures brokerage OANDA, in a Reuters report.

Analysts said losses in oil prices were limited by ongoing tension between the U.S. and Iran, as well as supply cuts led by the Organization of the Petroleum Exporting Countries since the beginning of the year.

Developments related to the Sino-U.S. trade dispute are also closely monitored. Hopes of a trade deal between the U.S. and China happening in the near future diminished after U.S. Treasury Secretary Steven Mnuchin told CNBC in an interview that a trip to Beijing to resume trade negotiations has not been scheduled yet.

Meanwhile, the South China Morning Post reported that recent restrictions imposed on Huawei have led China to rethink its economic relationship with the U.S.

(Source: Investing.com)

Even price volatility has been rather low, a surprising feature of a tight market rife with geopolitical risk.  Brent crude has been stuck between a relatively narrow range of $70 to $75 per barrel for more than a month, despite all the turmoil.

Furthermore, even the back end of the futures curve has barely budged, trading between $60 and $65 per barrel. At the same time, the front end of the curve has moved into steep backwardation – when near-term contracts trade at a premium to longer-dated futures. Backwardation is typically associated with a tight oil market – essentially, traders are willing to pay a premium for oil today relative to deliveries six or twelve months out.

What does all of this mean? “The recent movements in the oil price complex indicate some deep dislocations between the physical and futures markets and in market expectations about current and future oil market fundamentals,” the Oxford Institute for Energy Studies (OIES) wrote in a new report.

Last year, the oil market saw the opposite situation occur. The back end of the curve rose in anticipation of a tighter market while the near-term futures suggested the market was well-supplied, OIES noted. That discrepancy was sorted out when a wave of supply came online from OPEC+, the U.S., and the Trump administration gave surprise waivers to Iran. The end result was a crash in prices.

How will the gap in expectations be resolved this time around? “If 2018 is a good guide, the price level will eventually increase to reflect the current tightness in the physical market,” OIES said. The significant outages in Venezuela and Iran, the oil contamination problems in Russia, the potential for disruptions in Libya and the slowdown in the U.S. shale industry all point to increasing tightness.

The big question is how and when Saudi Arabia will respond. Riyadh is very reluctant to see a repeat of 2018 when prices crashed following production increases. This time around Saudi Arabia will err on the side of letting the overly tighten, although the OPEC+ group has adopted a “wait-and-see” approach, putting off a decision until the June meeting (which may even get pushed into July). That way, OPEC+ officials will have more data on how U.S. sanctions are affecting production in Iran and Venezuela, and events surrounding the U.S.-China trade war will also become clearer.

However, the wait-and-see strategy carries risks. “The challenge though is that rather than being resolved, most of the uncertainties (both on the supply and demand side) will only intensify in coming months,” OIES warned.

Supply outages are already at multi-year highs of about 3 mb/d and could rise further. While OPEC+ can compensate for such a large volume of disrupted output, outages cloud the supply/demand picture and make it difficult to plan. In any event, if OPEC+ burns through spare capacity, that in of itself can drive up prices and volatility, even if every barrel knocked offline is accounted for.

However, the biggest source of uncertainty is on the demand side. The U.S.-China trade war threatens global growth at a time when economic indicators are not looking great. Ultimately, a downturn would drag down prices.

OIES lays out a few scenarios. If OPEC+ sticks with the cuts, Brent prices could rise by $5 per barrel in the second half of 2019 relative to the first half, topping $77 per barrel later this year. If they add supply back onto the market by eliminating “over-compliance,” Brent may stay at around $70. If they exit the agreement entirely prices could fall as low as $60.

Adding to the confusion, OIES included some pricing forecasts that incorporated an economic downturn. A gloomier economic outlook combined with an ill-timed exit from the OPEC+ agreement could send prices down to $50.

Ultimately, OIES argues, there is a rather large gap in expectations between the bulls and bears. The bullish case rests on supply outages and OPEC+ sticking with its cuts, while a more bearish scenario sees turmoil within the OPEC+ coalition, forcing a premature exit from the deal. Adding to the downside risk is the possibility of an economic slowdown. The difference between these two outlooks is significant.

As such, the current state of low volatility, which hinges on assumptions about the steady hand of Riyadh, may not last.

“The extent of dislocations in expectations and the challenge of navigating in the current foggy conditions indicate that the oil market is set for a very bumpy ride,” OIES concluded.

(Source: Oilprice.com)

Relief over Washington’s temporary relaxation of curbs against China’s Huawei Technologies Co Ltd faded after reports that the White House is considering further sanctions on Chinese video surveillance firm Hikvision.

The yen and franc gained against the dollar and U.S. Treasury prices rose, but declines in U.S. and European equity markets were relatively subdued after recent sell-offs.

“The market is still expecting a resolution or at least a modification of some of the worrying aspects out there about the trade relationship,” said John Vail, chief global strategist at Nikko Asset Management in New York.

“Clearly the situation is more fraught than it has been in the past,” Vail said. “But for the time being we’re still positive on equity markets globally.”

The release of minutes from the Federal Reserve’s last policy meeting showed no surprises amid concerns the U.S. central bank might take action against potentially slowing global growth due to the increase in trade tensions. Fed officials agreed their patient approach to monetary policy could remain in place “for some time,” a further sign policymakers see little need to change rates.

“It doesn’t sound like they are ready to sound the alarm bells and talk about what they might have to do,” said Art Hogan, chief market strategist at National Securities in New York. “It appears as though the Fed is exactly where they want to be and don’t have to lean one way or the other.”

The Dow Jones Industrial Average fell 100.72 points, or 0.39%, to 25,776.61. The S&P 500 lost 8.09 points, or 0.28%, to 2,856.27, and the Nasdaq Composite dropped 34.88 points, or 0.45%, to 7,750.84.

MSCI’s gauge of stock performance in 47 countries across the globe shed 0.26%.

The FTSEurofirst 300 index of leading European shares closed down a scant 0.07% while Germany’s trade-sensitive DAX closed 0.21% higher.

Asia-Pacific shares outside Japan closed 0.03% higher and Japan’s Nikkei rose 0.05%. The Shanghai Composite Index closed down 0.5%.

Fears of another blacklisting have reinforced worries that U.S. President Donald Trump is looking beyond sealing a trade deal with China to a potentially bigger battle aimed at curbing Beijing’s technology ambitions.

The United States is at least a month from enacting proposed tariffs on $300 billion in Chinese imports as it studies the impact on consumers, U.S. Treasury Secretary Steven Mnuchin said.

A 30-day window would represent an accelerated schedule compared to previous rounds of U.S. tariffs. The next batch of levies would be ready when Trump and Chinese President Xi Jinping attend a G20 leaders summit in Japan on June 28-29.

The pound fell to its lowest level since early January, after Prime Minister Theresa May’s final gambit to get a Brexit deal approved failed dramatically.

Investors sought havens in the Swiss franc, Japanese yen and German government bonds. [FRX/] [GVD/EUR]

The yen strengthened away from two-week lows against the dollar, rising 0.14% to 110.33 yen, while the Swiss franc was higher against the euro and the dollar. The euro fell 0.04% against the dollar, to $1.1153.

In commodities, U.S. West Texas Intermediate (WTI) crude futures fell $1.71 to settle at $61.42 per barrel after American Petroleum Institute data showed that U.S. crude stockpiles rose unexpectedly last week. [O/R]

Oil was also pressured after Saudi Arabia reiterated that it would aim to keep the market balanced and try to reduce tensions in the Middle East.

Brent crude futures lost $1.19 to settle at $70.99 per barrel.

Benchmark 10-year Treasury notes last rose 11/32 in price to yield 2.3874%.

Gold steadied, inching off a two-week low. U.S. gold futures settled 0.1% higher at $1,274.20 an ounce.

(Source: Reuters)

In early European trading, futures for the pan-region Euro Stoxx 50 and German DAX were each down 0.8% while FTSE futures stumbled 0.6% and France’s CAC 40 futures slipped 0.7%.

U.S. stock futures also pointed to a weak start with the S&P 500 e-minis faltering 0.5%.

Investors worry that the U.S.-China trade dispute, which has already hurt global growth and business investment, could see a further sharp escalation with no signs of a resolution as yet.

Late Wednesday, Reuters reported the U.S. administration was considering Huawei-like sanctions on Chinese video surveillance firm Hikvision over the country’s treatment of its Uighur Muslim minority, according to a person briefed on the matter.

After the United States placed Huawei Technologies on a trade blacklist last week, British chip designer ARM has halted relations with Huawei in order to comply with the blockade.

Digging the knife in, the U.S. military said it sent two Navy ships through the Taiwan Strait on Wednesday.

“Both the U.S. and China appear to be preparing for a prolonged period of trade conflict,” wrote analysts at Nomura in a note on the standoff.

“We think domestic pressures and constraints will drive both sides toward further escalation,” they warned. “Without a clear way forward during an intensifying 2020 U.S. presidential election, we see a rising risk that tariffs will remain in effect through end 2020.”

In response, Shanghai blue chips shed 1.7% to be near their lowest since February. An index of major telecoms firms fell 3.7% as suppliers to Huawei suffered.

Treasury Secretary Steven Mnuchin said on Wednesday it would be at least a month before the United States would enact proposed tariffs on $300 billion in Chinese imports as it studies the impact on American consumers.

MSCI’s broadest index of Asia-Pacific shares outside Japan touched its lowest in four months and was last down 0.8%.

Japan’s Nikkei lost 0.6% and South Korea 0.3%.

The Indians market bucked the trend as Prime Minister Narendra Modi’s party scored a historic victory in the nation’s general election with official data showing Modi’s Bharatiya Janata Party (BJP) ahead in 292 of the 542 seats available.

At least 272 seats are needed for a majority in the lower house of parliament.

ENDLESS BREXIT

In currencies, constant trade friction saw the safe haven yen in demand again as the dollar dipped to 110.24 yen and away from the week’s top of 110.67.

The dollar was barely changed on the euro at $1.1144 and slightly firm on a basket of currencies at 98.175.

Minutes of the U.S. Federal Reserve’s last meeting out on Wednesday underlined its readiness to be patient on policy “for some time” given the uncertain global outlook.

The chance of a rate cut seemed to diminish as many Fed policy makers saw recent weakness in inflation as “transitory”, though the latest escalation in the trade war means markets are still wagering on an eventual easing.

Sterling had troubles of its own as it hit a 4-1/2-month low of $1.2611.

British Prime Minister Theresa May came under intense pressure after her latest Brexit gambit backfired and fueled calls for her to quit.

Prominent Brexit supporter Andrea Leadsom resigned from the government on Wednesday and British media reported May could announce her departure date as early as Friday.

BBC radio reported more British ministers could soon follow.

“Uncertainty is the only clear certainty in the near term,” said Westpac macro strategist Tim Riddell.

“The risk of a hard-Brexit replacement for May has increased the risks of a hard Brexit result or even a forced no-deal exit,” he added. “Such an event would likely force GBP lower, increase risks of assets sliding and BOE (Bank of England) taking counter action to support assets.”

In commodity markets, spot gold was a bit higher at $1,274.73 per ounce.

Oil prices added to losses suffered overnight after an unexpected build in U.S. crude inventories compounded investor worries about demand.

U.S. crude was last down 53 cents at $60.89 a barrel, while Brent crude futures lost 66 cents to $70.33.

(Source: Reuters)

Brent crude, the international benchmark for oil prices, ended Monday’s session at $78.23 barrel, the highest closing level since Nov. 25, 2014. On Tuesday, the contract took aim at $80 a barrel, striking a new 3½-year intraday high at $79.47.

At those levels, Brent was trading solidly above levels last seen prior to Nov. 27, 2014, the day OPEC refused to tackle oversupply in the oil market by agreeing to cap its production.

However, in a sign the market could struggle to maintain those levels, oil prices fell sharply on Tuesday morning, losing about $1 a barrel from the day’s highs as U.S. stock markets slumped.
Until the November 2014 OPEC meeting, oil prices had slid about 30 percent from multiyear highs over the course of five months. OPEC’s decision that year supercharged the sell-off, with Brent prices dropping from $77.75 the day before the meeting to $70.15 the day after.

OPEC and top oil exporter Saudi Arabia had wagered that low oil prices would force U.S. shale drillers to throttle back production. Shale drillers use expensive methods to squeeze oil and gas from rock formations in parts of the United States.

However, OPEC miscalculated, and Brent ultimately fell as low as $27.10 per barrel in January 2016. That persuaded OPEC to work with Russia and several other producers to take 1.8 million barrels a day off the market beginning in 2017.
That deal has helped boost prices back to where they were prior to OPEC’s fateful decision. The price recovery has exceeded expectations thanks to robust oil demand; an economic crisis that has tanked Venezuela’s production; and renewed U.S. sanctions on Iran, OPEC’s third-largest producer, by President Donald Trump.
While surging U.S. production is offsetting the output curbs, OPEC appears to be in control of the market right now, said John Kilduff, founding partner at energy hedge fund Again Capital. In his view, OPEC could allow prices for U.S. crude to run up from today’s prices between $70 and $72 a barrel to $80 to $85 a barrel.

“For now, it’s going to stay high and it could easily be engineered higher by the Saudis until they get pressured maybe by President Trump to put more oil on the market,” he told CNBC’s “Squawk Box” on Tuesday.

Last month, Trump tweeted that oil prices are “artificially Very High,” pointing a finger at OPEC for elevated crude costs, which can hurt incumbent politicians by raising fuel prices for voters.

West Texas Intermediate crude futures, the American benchmark, closed on Thursday at their highest levels since the day before the November 2014 OPEC meeting, but they have yet to settle higher than they did on that day.

(Source: CNBC)

Prices are down around 16 percent since the start of the year, dragged lower by a glut, China’s weakening economy and stock market turmoil, as well as the strong dollar, which makes it more expensive for those using other currencies to buy oil.

“The bearish sentiment surrounding the commodity has intensified,” said Brenda Kelly, head analyst at London Capital Group.

International benchmark Brent crude fell to a low of $30.43 per barrel, a level last seen in April 2004, before recovering to $31.43, down 12 cents or 0.38 percent, by 1028 GMT.

It was down for the seventh consecutive session, and has fallen every day of 2016 so far.

U.S. crude West Texas Intermediate (WTI) fell to a low of $30.41 per barrel, a level last seen in December 2003, before crawling back to $31.06, down 35 cents or 1.11 percent.

Trading data showed that managed short positions in WTI crude contracts, which would profit from a further fall in prices, are at a record high, implying that many traders expect further falls.

China’s slowing economy has been another factor contributing to the oil rout, which has pulled prices down by around 70 percent since mid-2014.

And while demand looks fragile, supply from key producers remains robust.

Iraq, the second-biggest producer within the Organization of the Petroleum Exporting Countries (OPEC), plans to export a record of around 3.63 million barrels per day from its southern oil terminals in February, trade sources said.

They cited a preliminary loading program, up 8 percent from this month.

Nigeria’s oil minister said a “couple” of OPEC members had requested an emergency meeting, adding that current market conditions support the need to hold such a gathering.

Analysts have been shifting their price outlooks downward, with Barclays, Macquarie, Bank of America Merrill Lynch, Standard Chartered and Societe Generale cutting their 2016 oil forecasts this week.

StanChart took the most bearish view.

“We think prices could fall as low as $10/bbl before most of the money managers in the market conceded that matters had gone too far,” the bank said.

(Source: Reuters)

There’s less than a 50 percent chance that prices will drop to $20 a barrel, most likely when refineries shut in October or March for maintenance, Jeffrey Currie, head of commodities research at the bank, said in an interview in Lake Louise, Alberta. Goldman’s long-term forecast for crude is at $50 a barrel, he said.

Goldman cut its crude forecasts earlier this month, saying the global surplus of oil is bigger than it previously thought and that failure to reduce production fast enough may require prices to fall near $20 a barrel to clear the glut. Prices may touch that level when stockpiles are filled to capacity, forcing producers in some areas to cut output, Currie said Wednesday.

“When we think of the longer term oil price, yes we put it at $50 a barrel,” he said. “However the risks are to the downside given what’s happening in the other commodity markets and the macro markets more broadly.”

Lower iron ore, copper and steel prices as well as weaker currencies in commodity-producing countries have reduced costs for oil companies, according to Currie. The world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase,” with shale fields as an important source of output, he said.

U.S. benchmark West Texas Intermediate crude futures were 1.3 percent lower at $46.52 a barrel on the New York Mercantile Exchange at 11:24 a.m. London time. Prices are down about 13 percent this year and have plunged more than 50 percent over the past 12 months.

Fed Rates

The U.S. Federal Reserve may “leave a lot of negative uncertainty in emerging markets,” potentially affecting oil demand, if it doesn’t raise rates at its meeting this week, Currie said.

The Federal Open Market Committee will release its policy statement along with quarterly economic projections Thursday in Washington. It will weigh the impact on the U.S. outlook from slowing growth overseas and falling stock prices, as committee members determine whether to end almost seven years of near-zero interest rates. Economists are close to evenly divided on the outcome, with 59 of 113 surveyed by Bloomberg expecting the Fed to stand pat.

While a “dovish hike” in interest rates would reduce uncertainty in emerging markets, any adjustment would be a “relatively small story” for crude, Currie said.

(Source: Bloomberg)

Investors are looking to the U.S. Federal Reserve for direction this week. The central bank starts a two-day policy meeting on Tuesday that could result in a September interest rate hike that would strengthen the greenback.

“The markets are looking for price guidance from Janet & Co,” said Ben Le Brun, market analyst at Sydney’s OptionsXpress, referring to Fed Chair Janet Yellen and the bank.

“There is scope for the dollar bulls to be disappointed this week (which) might be a driver for oil prices and the commodities complex overall,” Le Brun said.

A weaker dollar makes dollar-denominated commodities, including oil, cheaper for consumers using other currencies.

Brent crude for September LCOc1 was down 2 cents at $54.60 a barrel as of 0655 GMT after dropping 65 cents in the previous session to $54.62, its lowest close since March 19.

U.S. crude for September CLc1 was down 12 cents at $48.02, after falling 31 cents in the previous session to $48.14, its lowest settlement since March 31. It hit an intra-day low of $47.72 on Friday, the lowest intraday price since April 1.

Sparking new worries about a global glut, U.S. oil producers added 21 drilling rigs last week, the biggest rise since April 2014, according to Baker Hughes (BHI.N).

The increase in drilling activity came despite a 21 percent collapse in U.S. crude prices from about $61 a barrel in mid-June. A 20 percent downturn is considered by many traders to constitute a bear market.

In Iraq, exports from its southern oilfields are on course for a monthly record, having topped 3 million barrels per day so far this month, according to loading data and an industry source.

The expectation of continued abundant oil supplies, including an output increase from Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries, led the National Australia Bank on Monday to revise its oil price forecasts in a monthly report.

“We now expect oil prices to stay below $70 a barrel for the rest of 2015 and 2016,” the bank said.

Speculators cut long bets on U.S. crude futures and options to the lowest level in five years last week, the U.S. Commodity Futures Trading Commission said on Friday.

(Source: Reuters)