Review of Oil Trading Markets - 2024 - 18th to 22nd November

Oil prices pushed considerably higher this week but it must be said the sharp rise feels more to do with a major escalation in the Russia/Ukraine war than lower supply and increasing oil demand.

Once again we are caught in an oil market full of smoke, mirrors and war rhetoric…all spinning around a missile crisis which has escalated dramatically this week.?

Vladimir Putin launched for the first time an Oreshnik inter continental ballistic missile against the central Ukrainian city of Dnipro as an anger fuelled payback for Joe Biden’s decision to authorise Ukraine to use an American missile system, the?Army Tactical Missile System (ATACMS) against?Russia in Ukraine.

The Russian reprisal came after Ukraine reportedly launched 6 of the?US-made Atacms missiles into munitions targets in the Russian south-western Bryansk region which borders Ukraine.

The U.K. and France both gave their support to Ukraine to use their own specialist missiles too.

Putin’s actions suddenly lit the fuse under oil prices and as a consequence markets shifted rapidly higher as both American and Russian governments raised the stakes to a very dangerous level, signaling investors had little choice but to buy oil futures again regardless of current consumer demand.?

The World shuddered, and although the U.S. later back-pedaled a little on exactly what type of weapon was actually used by Putin, but it was too late to check the story’s validity, the oil markets had already left the bunker.

Fear, shock and awe gripped the market at the realisation the missile used was a step closer to a nuclear one, that trio of devils scared oil investors back in to start buying again.

The next move by President Putin was to address the Russian people describing the gravity of the West’s decision to allow Ukraine to fire missiles directly into Russia as “reckless” and issuing yet another scary warning that such actions could lead to the possibility of global war.

This new twist in the war filled oil markets has almost certainly set a firmer price tone for the balance of 2024, although to be fair gasoline, gas oil and LPG all have fundamental reasons for their prices to remain steady to firm for the coming weeks, but now everything?has changed, those traditional oil price drivers OPEC+, China, Israel, Iran, the Middle East crisis, oversupply versus weak demand, all of which at one time or another in 2023 and 2024 have dominated price moves are now effectively sideshows to the escalation in the Russia/Ukraine war which has moved to the centre of stage again.

Nobody knows what the next move will be, but we can be sure Putin, North Korea and Iran will drive the threats against the West for all they are worth, in their quest to trail the Golden Fleece in front of Donald Trump’s and the West’s nose to try to gain the upper hand.?

When Joe Biden took off the safety catch last Sunday, oil markets become weaponised again putting the World under pressure and traders in a quandary, the inevitable question being how do you trade an oil market against a backdrop of escalating wars?

We’ve almost come full circle, the fear factor is back just like it was on the 24th of February 2022.

The return of Donald Trump could be a game changer for the West, but feels more likely a game changer for America leaving Europe to deal with the fall out in isolation.?

However, The Donald is probably the only President capable of standing up to those who wish to change Western democracy to one of authoritarian dictatorship, even if it is likely to be in the form of a deal!

The Donald cavalry is heading back into town, but will his arrival be too late?

?

The Economist presents a different view of Donald’s return and the impact he could have on the wars of the world.

They suggest in a more dangerous world President Trump’s desire for disruption and capacity to intimidate will have uses.?

“Yet his brinkmanship, inconsistency and vulnerability to being played by opponents will cut against his aim of pursuing “peace through strength”.

The long-term restoration of American power requires investment and alliance-building that he will probably be unable or unwilling to do. The deterrence gap is growing, and in 2025 the world will find that even Mr Trump is not a big enough figure to close it.”.

How much longer will he allow America to participate in Europe’s war??

Meanwhile on the sidelines of the war we have been sifting through the scraps of reports, opinions, predictions and even forecasts for oil prices in 2025.

Although analysing fundamentals of global oil inventories and supply versus consumer demand etc is now a sideshow, all predictions and forecasts for oil prices having now been pushed off a balcony by this week’s events ……a mild mannered uninteresting bearish trending oil market has now been turned into a cautiously bullish one…

In other news….

OPEC seem ready to have a video meeting on the 1st of December to discuss again when to increase oil production. Historically their video meetings suggest a short decision making process…. i.e. a rollover in current policy.?

Goldman Sachs predict Brent crude?oil prices are set to average $76 per barrel next year, down from an expected average of $80 a barrel in 2024, amid an expected surplus on the market!

"Our base case is that Brent stays in a $70-85 range, with high spare capacity limiting price upside, and the price elasticity of OPEC and shale supply limiting price downside. However, the risks of breaking out are growing," the investment bank's analysts wrote in a note carried by Reuters.

Really?…..speechless!

JP Morgan called an average $73 a barrel for 2025.

During this week the IEA produced a more detailed analysis of oil markets and its findings were surprising!

Their experts have come up with an interesting twist on the IEA’s?previously bearish outlook for oil.?

They report global inventories have been drawing down since mid year at a much larger rate than they had previously reported.?

The agency noted in its November report sharp inventory drawdowns in observed global oil stocks.

According to their latest observations Global oil inventories plunged by 47.5 million barrels in September to their lowest level since January, led by a sharp draw in OECD (there are 38 countries currently in the Organisation for Economic Co-operation and Development) oil products and non-OECD crude oil stocks.

OECD industry stocks fell by 36.4 million barrels to 2.8 billion barrels, which was 95.3 million barrels below the five-year average.

Provisional data suggest total global stocks decreased again for a fifth consecutive month in October.?

That’s quite a bullish turn especially going into U.S. refinery turnaround season.

Global inventory figures should be watched closely from here on in especially if bullish news suddenly appears from China.

Nigeria’s ambitious strategy to price crude oil in naira for local refineries has encountered significant setbacks just two months after its rollout Oil Price reports. Spearheaded by the Nigerian National Petroleum Company (NNPC), the plan’s goal was to stabilise the country's dollar reserves while ensuring sufficient crude supply for domestic refining.

But the initiative appears to be faltering.

Major players like Dangote Oil Refinery are receiving only a fraction of what it was promised.

According to Edwin Devakumar, the Dangote refinery's executive director, NNPC committed to delivering 385,000 barrels per day (bpd) to the 650,000-bpd facility but has failed to meet even this reduced quota. Describing deliveries as “peanuts,” Devakumar highlighted the challenges of relying on inconsistent domestic supply chains.?

In summary, oil prices and markets remain in the grip of something other than oil.

The World has had almost 3 years to regroup and find alternative supply to Russian oil, which for the most part has been successful, so it’s not easy to understand why this week’s escalation in the Russia/Ukraine war has pushed prices much higher, unless of course the war moves closer to Europe as a whole, then all bets are off.

One release of the safety catch by Joe Biden has suddenly created a much more fearful and dangerous position for the World and Europe especially.

One false decision or mistake made by any of the protagonists could heavily impact us all…. If it isn’t doing so already.

This week’s closing guide prices:

ICE Brent 75.28 (+3.83)

WTI 71.24 (+3.97)

Ice gas oil 696.75 (+28.50)

Euro Mogas swaps 692.00 (+31.25)

Euro naphtha swaps 627.00 (+23.50)

Nymex gasoline 2.0614 (9.96 cents per gallon)

Lpg swaps 584.75 (+34.75)

Opec basket 73.32

Credit - Robert Haynes - Silvergreen Energy Ltd