Commodities Corner: Rigor Mortis
The OPEC+ group met at the weekend to discuss possible new cuts to its production cap but the real story for the oil market was yet another fall in the number of US oil and gas rigs in use, setting up a growing chance of a fall in American production later this year and in early 2024.
The OPEC+ discussions came after oil prices dipped under $US70 a barrel for US West Texas Intermediate (WTI) - style crude midway through last week as more reports emerged of a new supply glut.
The cuts were discussed as part of options for Sunday’s OPEC+ ministers meeting that was due to start at 10pm Sydney time. OPEC ministers met Saturday evening, Sydney time and didn’t release a statement afterwards.
Friday saw world oil prices rise going into the weekend OPEC meetings. US WTI crude oil for July delivery rose $US1.64 to $US71.74 a barrel while the global marker crude, Brent crude for August delivery rose $US1.85 to $US76.13 a barrel.
That left WTI down 1.4% for the week while Brent lost 1%. Year to date, Brent is down 11% and WTI was down more than 10%. In the year to last Friday, WTI had lost 40% and Brent had shed 37% of its value.
Reuters (which, along with the Wall Street Journal, had been banned by OPEC from the meetings) reported the cuts could amount to 1 million bpd on top of existing cuts of 2 million bpd and voluntary cuts of 1.6 million bpd that was announced in April.
But Reuters had earlier reported OPEC sources saying that they didn’t see any cuts emerging from the weekend meetings.
Russia apparently doesn’t see any cuts either, according to the country’s oil minister.
If approved, it would take the total volume of reductions to 4.66 million bpd, or around 4.5% of global demand.
April’s surprise cuts sparked a surge in prices by around $US9 a barrel to more than $US87 for Brent and just over $US83 a barrel for WTI.
But they didn’t last and they swiftly retreated, pressured by growing concerns about global economic growth and demand. Oil prices are down around 13%-14% since April’s OPEC cuts.
But while the focus is on the OPEC meeting, markets don’t seem to be much concerned about the continuing fall in oil and gas rigs in use in America.
The number of oil rigs operating in the US fell by 15 last week, according to the weekly report from services company, Baker Hughes.
That was after nine oil and gas rigs were shut down in the US in the week of May 26, taking the number closed in May to 45, the biggest number for a month for three years.
Last week, the number of oil rigs fell to 555 from 570 (a 13-month low), while the number for gas and miscellaneous rigs remained unchanged on a weekly basis at 137 and four respectively.
A year earlier, the US had 574 oil rigs, 151 gas rigs and two miscellaneous rigs in operation. The number of oil rigs in use hit a 30-month high of 627 in December, 2022.
Overall, there were oil and gas 696 rigs operating in the US this week, compared with 727 rigs a year ago.
Despite the fall in rig numbers, there’s no interest in what this might mean for future US production now running around 12.1 million bpd in mid-May (11.9 bpd a year earlier) and is still forecast to rise towards 13 million barrels a day by the end of this year.
Mid-May output was only 900,000 barrels under the all-time high of 13.1 million barrels a day in early 2020, just as the pandemic was starting.
But analysts say the loss of 60 operating oil rigs since the start of May will eventually have an impact on US production, even with improved production efficiencies being wrung from existing operations.
Meanwhile Comex gold for August delivery fell $US31 to $US1,964.30 an ounce on Friday after the US Congress did a debt ceiling deal which was then signed into law by President Biden.
That left gold up 0.9% for the week.
Comex silver for July delivery fell 29 cents to $US23.695 an ounce and July copper rose 2.2 cents to $US3.73 a pound. That was up from the six-month low of $US3.75 a pound on May 25.
Copper (and oil for that matter) rose Friday after Bloomberg claimed that the Chinese government was thinking of stimulus spending after weak data last week.
In Singapore, iron ore prices edged higher, finishing Friday at $104.15 a tonne for 62% Fe fines, up around 6% or so from the previous Friday’s close of $US97.90 a tonne.
Australian coking coal in Singapore finished at $US242 a tonne, down from $US251 a tonne.
Newcastle thermal coal fell more than 2% last week in newcastle to $US134.15 a tonne for July delivered coal. That’s halved from the start of the year.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.