All the indicators suggest that global crude oil market is suffering from supply glut, mainly because of high shale oil production. Nothing seems to be moving oil price in any way other than Sino-US trade war. The Western media is still trying to prove that very thing hinges on the two powerhouses striking a deal, be it global economic growth or oil demand. Any attempt to try to create bullish sentiments seems completely artificial and far away from ground realities.
The markets appear to have turned decidedly bearish with supply/demand imbalances drowning out everything else to the extent that even an epic event, attack on Saudi Aramco oil facilities proved storm in a cup of tea. The event that could have caused the biggest supply disruption in the history only provided a temporary support for prices.
The Western media is still busy in creating illusion by suggesting several scenarios that could induce rally in oil markets and put prices on upward trajectory once again. It is suspected that once a trade deal is reached, then geopolitical risk will again be able to create upsets and the often used recipe will be the rig count, which often creates the highest deception.
During the first week of November 2019, hedge fund bets on US benchmark, WTI that took its price to new highs. Even though US shale producers are pumping crude like crazy and adding to supply, hedge funds see reduced drilling as a sign of lower production next year.
It can’t be ruled out that Western media will use three scenarios for pushing oil prices higher in the near-and mid-term:
The long-running trade war between the world’s two biggest economies has brought about a general malaise to the global economy. Negotiations between Washington and Beijing have been long, intermittent and protracted with plenty of confusion.
It is often said, all’s well that ends well – finally, there seems to be some light at the end of the tunnel after the Trump-led team announced they have finalized ‘Phase One’ of the trade negotiations. Oil markets have largely remained indifferent, underlining just how much damage the trade spat has wrought on the global economy. Maybe all those platitudes about confidence bouncing back after an initial deal were a touch optimistic.
Rising geopolitical risks, particularly in the Middle East – home to more than 60 percent of the world’s oil reserves is bullish for oil. Tensions between Iran and Saudi Arabia reached a boiling point following the 14th September attacks on Aramco’s oil facilities. The New Iran Deal remains a highly emotive issue. Western media alleges Iran has kicked off another round of uranium enrichment. The International Atomic Energy Agency will release a new report, which will clarify whether Iran has been complying with its commitments or not.
The European Union is desperate to forge a new nuclear deal with Iran to replace the 2015 deal that Trump had quit last year. The EU is trying to create a Special Purpose Vehicle that can help the bloc circumvent US sanctions and continue buying Iranian oil. So far, it’s clear the sanctions are working, with oil exports from Iran on a continuous decline.
In the highly likely event that Trump and his European allies are unable to forge a new deal, tensions between Iran and Saudi Arabia are likely to escalate. While chances of an all-out war with the US or Saudi Arabia appear slim, tensions in the region are likely to remain high and increase the supply risk.
Declining inventories and rig count
In late October, oil prices surged 3 percent after the US Energy Information Administration reported a surprise decline in US crude inventories. The organization revealed that on a seasonal basis, gasoline demand in the US has been at its highest since 1991. Meanwhile, US oil rig count has been trending south for many months now. The latest Baker Hughes report showed a decline of 5 rigs from the preceding week to 817, and a massive fall from the 1,057 rigs reported at a corresponding point last year.
The protests and political upheavals in Lebanon and apprehensions by United States must be read very carefully. The developments in Lebanon have to be viewed with a different perspective after Lebanese Energy and Water Minister Neda Boustani announced the start of drilling of country’s first oil well in the waters off the coast of Beirut.
The oil well is to be drilled in the Mediterranean 30 kilometers from the Lebanese capital in the north. About a year and a half ago, Lebanon awarded its first offshore gas and oil exploration and production agreements to a consortium of France’s Total, Italy’s Eni and Russia’s Novatek for two blocks out of ten.
Ten oil blocks have been identified in the coastal waters of Lebanon with an area about 18,000 square kilometers.
The Americans, who have shown that the smell of oil drives them to the oil-rich countries, these days, pretend that they are really concerned about the situation in Lebanon and its people. Mike Pompeo, US secretary of state, has recently claimed that Iraqi and Lebanese people want their countries back from Iran.
The expression of concerns by the US over the situation in Lebanon, in the light of Boustani’s announcement, has led various Lebanese groups, especially Hezbollah, to feel the danger very well. Hezbollah Executive Council Deputy Chief Sheikh Ali Da’mush has warned that the US and its allies are seeking to undermine the political system in Lebanon and restructure it in their own favor.
The US wants a government comes to power which would be under its own control and implement Washington’s plans.
Undoubtedly, one cannot have a positive view of sudden unrest in oil-rich countries in the Middle East under the shadow of US intervention. History has shown that oil-rich countries have always suffered from domestic tensions and crises so that Western powers, that usually lead the riots, can easily plunder their oil resources. In any case, it seems that after Syria, the US has specified Lebanon as its next destination for oil robbery, and US officials are expected to make specific comments on the developments in the country in future days.