March Newsletter 2019: Oil Market Review

March Newsletter 2019: Oil Market Review


Brent has rallied the past month buoyed by voluntary and involuntary cuts to production. However, demand-side concerns are starting to weigh on traders’ minds as global economic forecasts continue to weaken.

Is it me or has keeping New Year’s resolutions always been hard? From my diet plans to my bestie’s diet plans to Russia’s supposed crude production curb plans has all been spectacularly………meh. Crude has rallied about $3.00 since the last report largely thanks to supply curbs all around with the star of the show being the Saudis, dropping off almost 1mbpd of production since October. That supposedly took over the lacklustre enthusiasm of the Russians whose production fell only a little over 100kbpd, a far cry from the 250kbpd that was promised. I guess frostbite in the Siberian Plateau really takes a toll on work efficiency.

The rest of the coalition largely fell in line with overall OPEC production falling more than 2.5mbpd during the same period. Libya’s El Shrararara (Never could remember how many “ra”s there are) finally came back online with 300kbpd after the army stepped in. Never fails to surprise me that the militants could just stroll into an oil field and demand to be employed by the NOCs. Not exactly conventional job-hunting strategy but apparently, it’s effective when it comes to oil fields.

That recovery pretty much netted off against Venezuela’s involuntary and very reluctant 200kbpd decline. Failure of public infrastructure piled upon the political uncertainty as Venezuela suffered 2 blackouts this month. The shoddily maintained power generators gasped its last breath, spat fire and blew up. With even basic infrastructure crumbling, I will not be surprised if the crude production grinds to a complete halt by the end of this year. Then again, the silver lining here (if you squint and look really closely), is that US sanctions have worked a lot better than expected. There are tankers full of Venezuelan crude docking in their ports waiting for buyers brave enough to weather sanction penalties. And they are still waiting.

All this news seems to be boon to the bulls, so one might wonder why Brent hasn’t popped the mythical $70 yet. This comes down to the demand side of the equation. Thanks to the US sanctioning and imposing tariffs on anyone that give them the wrong look and Britain treating Brexit like an enabling psychiatrist, nations everywhere have adjusted down their growth forecast for this year. Even the Federal Reserve has changed its stance and halted an interested rate hike this month. China has adjusted down its growth this year to about 6%, weakest levels since the 1990s. Then again, given the rise of populism and sanctioning everywhere, the current climate seems more akin to the Cold War than modern 21st Century. Populism in US blames the unfair trade agreements and immigrants. UK blames the EU and immigrants. EU blames the immigrants. Everyone else blames the US. Personally, I blame the millennials for not buying diamond rings or eating enough avocado toast.


Back again to home. Just as we thought the spot volatility in February was calming down, March greeted us with 4 days of high spot, with prices spiking to as high as $1,180 on the 17th Mar. March spot volatility spilled over to April futures price and the coming months as prices in those contracts rose significantly in the past month. With lesser scheduled generator outages in April, hopefully it’ll calm spot prices and give businesses on pool some breathing space.

In other news, OEM is still in full gear as more and more consumers realise the benefits of switching from SP. iSwitch recently celebrated its 40,000th customer signup and our HR is now scrambling to organize the 50,000th signup party. Hmmm, perhaps we should space the celebration further apart but who am I to say no to free food and drinks?

Zheng Tianbai, Analyst
Written on 27th March 2019

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