Energy Price Report

Monday, June 3, 2019

Energy futures are bouncing back some on Monday after recent heavy losses amid supportive remarks by the Saudi Arabian Energy Minister regarding an extension of the OPEC+ output agreement, indications of decreased oil production in Saudi Arabia and Russia last month, a potential reduction of oil and gas output in Norway, and weakness in the US dollar (down by 0.10%), despite losses in European stocks and major US equity index futures.

In supportive news, according to the Saudi Arabian Arab News newspaper, Saudi Arabian Energy Minister Khalid al-Falih stated that there is an emerging consensus among OPEC+ producers on the need to extend the current output agreement for another 6 months. He strongly believes that “drawing down inventories from their currently elevated levels” is what producers need to do to sustain the oil market stability.

In supportive supply-side news, Saudi Arabia produced about 9.65mb/d of crude oil in May, below the 10.3mb/d target level pledged by the kingdom under the OPEC+ agreement, according to a Reuters source. Also supportive, data from the Russian Energy Ministry showed that Russian oil production fell to 11.11mb/d last month from 11.23mb/d in April, the lowest level since June 2018 and below its pledged level of 11.18mb/d under the OPEC+ deal, mainly due to outages amid oil contamination via the Russian Druzhba pipeline.

In other supportive supply-side news, industry association Norwegian Oil and Gas warned today that oil and gas production in Norway could be slashed by about 440kb/d if oil workers, represented by the Lederne union, decide to go on strike tomorrow.

In more neutral news, investment bank Goldman Sachs said that crude oil prices are expected to remain steady at current levels, as fears over a global economic slowdown and increasing US crude output will likely offset supply outages in Iran and Venezuela.

Asian stocks were mixed this morning, despite encouraging economic data releases over the weekend for Asia. The Japanese manufacturing sector contracted last month, with the Manufacturing PMI falling from 50.2 to 49.8, but slightly above the Econoday consensus at 49.6. The Caixin Manufacturing PMI for China stayed unchanged at 50.2 in May, beating expectations. Also, supportive, the Manufacturing PMI for India rose from 51.8 to 52.7 last month. European equities were trading lower this morning, as economic data releases for Europe were neutral to unsupportive. Manufacturing PMI indexes for the Eurozone, Germany, and France all matched expectations in May. However, the UK manufacturing sector saw a surprise contraction last month, with the CIPS Manufacturing Index dropping to 49.4. Market participants looked ahead to the US ISM Manufacturing Index for May and construction spending for April for further direction.

Energy futures fell deep in the red on Friday, amid heavy losses in global equities following an announcement from President Trump that he will impose 5% tariffs on all Mexican imported products and disappointing economic data releases, and as Baker Hughes reported a rise of 3 in the US oil rig count for last week, to 800. WTI crude tumbled $3.09 for a $53.50 per barrel  settlement, Brent crude fell $2.38 to close at $64.49, heating oil closed 7.32 cents weaker at $1.8418 per gallon, gasoline dropped 7.66 cents to settle at $1.8020 and natural gas fell 9.3 cents to close at $2.454 per MMBTU.

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