June Newsletter 2018: Oil Market Review

June Newsletter 2018: Oil Market Review

The market has gone through a rollercoaster ride since the beginning of the month with news sentiments swinging prices although it is largely down month to date.

Oil rally has been blunted significantly after announcement of OPEC meeting and trade tariffs between China and US

A historic meeting between the American president Donald Trump and North Korean leader Kim Jong Un occurred in Singapore this month. The world watched and applauded this meeting and what it symbolizes; One step closer to a peaceful Korea. Kim Jong Un was given a Korean popstar’s welcome in Singapore and Donald Trump was actually seen having fibre for lunch.  While all this had little impact on the oil markets, the one lesson we do take away from this is that anything is possible.

The hottest news on the block remains to be the production ambitions of the US, Russia and OPEC. With Iran’s sanctions becoming increasingly likely come November and Venezuela’s oil infrastructure gradually crumbling into disrepair, the 3 mentioned earlier seem more than eager to fill in the gap that will be left open.

At the end of the OPEC meeting on the 22nd June, the Saudis presented everyone with a mathematical conundrum where they stated a production increase of 1mpd with a real increase of only 600 kbpd. The subsequent meeting with the OPEC+ meeting on 23rd June reassured everyone that there will be a real increase of 1mpd. In the meantime, the oil markets went on a rollercoaster ride rallying $3 per barrel before falling back down.

The US charged on ahead with an increased rig count and production with estimated expansion of 1.44mpd this year by the IEA. However, there seems to be a supply bottleneck as the US pipeline flows reaches its maximum capacity. So, until that has been resolved, real US shale production outlook is still uncertain.

In other news, the trade war between US and China has been reignited with fiery and Trump-ian fashion. It has weighed heavily on oil prices, equities, commodities and my heart. After a falling out on talks, new tariffs announced last week are due to take effect in July. A cumulative $250bn worth of tariffs were proposed across multiple products including energy related commodities such as coal and crude oil.

All in all, oil is set for a volatile month. A key event to look out for would the outcome of the trade war between China and US. Personally, I would prefer to go back to a simpler time when I was thought Clinton might win. Then again, I’ll probably be spending as much time wondering about the outcome of the trade war as thinking if I should follow the NCPG’s team picks this year.

Author: Zheng Tianbai, Analyst, iSwitch Energy Team

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