It’s been a good week for the oil markets as the reaction to OPEC’s agreement continued to gain favour among traders and investors.
A stronger sense of sentiment is back and in early trading on Friday, Brent crude was priced around US$52 with WTI just above US$50 a barrel.
This is the first time since mid-June that WTI has broken through the hugely psychological figure of US$50 a barrel.
The financial markets seem more confident with energy stocks as the crude foreword curve pushed above US$50 a barrel.
The boost in oil prices played well on the stock market this week for all energy related stocks.
Despite slow momentum in the price all year, the added value has been welcomed.
A report from S&P Global Market Intelligence estimates that the 36 listed energy companies listed on the Standard & Poor’s 500 Index gained a collective US$312 billion in market value since February when the oil price was in the mid-20-dollar range.
Stronger fundamentals are returning
There’s a few signs of stronger fundamentals coming back into the market.
American oil inventories are down below 500 million barrels for the first time this year.
The over supply of inventory has weighed on the market all year, but we’ve seen de-stocking for 5 straight weeks.
In the longer term, the market needs to see sustained stronger oil demand to see the price strength stabilizing.
IMF warns of tepid growth
The International Monetary Fund released its global growth forecasts this week and left forecasts for 2016 and 2017 unchanged, but warned of “tepid” growth in the near-term.
While no downgrade was welcomed by the markets, some analysts say we need to look closer at the numbers.
“The 2016 US growth forecast, however, was lowered significantly to 1.6 percent from 2.2 percent in July, and the 2017 US growth forecast was lowered to 2.2 percent from 2.5 percent in July,” says Jason Schenker.
He adds that he still believes “the IMF forecasts are too high for the US and global economies.”
OPEC output high on the agenda
OPEC’s agreement to agree an output ceiling remains high on the agenda for all ministers and many of them will meet next week in Turkey at the World Energy Congress.
The Russian Energy Minister Alexander Novak said he planned on meeting with the OPEC Secretary General, Mohammed Barkindo and other ministers on the sidelines of the Istanbul meeting.
The Algerian Minister Nouredine Bouterfa will also be in attendance and he is already talking about the possibility of an even bigger cut when ministers meet formally in Vienna at the end of November.
As strength comes back to the market, producers need to continue to manage “fit at 50.”
The industry is getting more resilient at lower prices, but the combination of sentiment and reality need to begin to match.