geopolitics

After the best January in 12 years, the oil markets declined slightly last week as a stronger dollar and crashing equity markets offset surging US shale oil production, and steadily increasing US rig counts.

Last week oil prices recorded the biggest weekly loss since October as the IEA, EIA, and OPEC all forecasted large increases in US shale oil production during the next two years.  

New York oil futures closed up 4.7 percent last week despite a ten-rig increase in the number of active US oil rigs.  London and New York futures closed with biggest weekly gains since October. 

The first week of the new year saw much activity related to the energy markets. Oil prices continued to climb with NY futures closing at $62.01 on Thursday, the highest close since December 2014. The continuing fall in world crude stocks — US stockpiles were down by 7.4 million barrels last week—and a healthy global economy continues to push prices higher.  London futures are now at $67.66 a barrel and are closing in on $70.

US futures closed out 2017 above $60 a barrel for the first time since mid-2015. In the first half of the year, the OPEC/Russian production cut seemed to have little effect, but as the year wore on global crude inventories dropped. 

Last week started with a combination of the North Sea pipeline outage and a strike by Nigerian oil workers pushing prices up. In the background is the steady decline in world oil stocks that has convinced many that the oil glut will soon be over, and the steady increase in US shale oil production which has a few predicting that another price plunge is coming soon.

Oil prices currently seem on course to finish out 2017 with a second annual gain after the decision by OPEC to extend its production freeze through 2018. Last week Brent briefly climbed above $65 a barrel for the first time since 2015 due to the closure of the pipeline that brings some 455,000 b/d ashore from the North Sea fields.

In the wake of the OPEC decision to extend the production freeze, the oil markets were relatively quiet last week. Prices fell early in the week after the EIA reported a 6.78-million-barrel increase in the US gasoline inventory, but climbed later in the week on reports of near-record Chinese oil imports for November of more than 9 million b/d and concerns about the embassy-in-Jerusalem situation.

The long-discussed decision by OPEC and its collaborators on whether to extend their production freeze to the end of 2018 came last week and to nobody’s surprise was unanimous. After three months of hype, hints, rumors, and speculation, and a nearly $10 a barrel increase in oil prices, the matter is settled for another year.

Oil prices leveled off last week with New York futures closing at $56.74, up more than $20 a barrel since June.  Brent closed about $7 higher at $63.52. As has become normal these days, multiple factors impacted the oil prices last week pulling the markets in both directions.