Oil Markets Enter “Crucial Period”
Oil prices edged up this week on lost supply from Iran and Venezuela, although those supply concerns are somewhat offset by worries over demand.
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OPEC downgraded demand while the IEA said in a report that supply outages are “tightening up” the oil market. With Iran sanctions less than two months away, “we are entering a very crucial period for the oil market,” the IEA said.
Oil market remains “fragile,” Russian energy minister says. Russia’s energy minister Alexander Novak said that the global oil market remains “fragile” because of production declines and geopolitical unrest. “This is huge uncertainty on the market – how the countries, which buy almost 2 million barrels per day of Iranian oil will act. Those are Europe, Asia Pacific region … There is a lot of uncertainty. The situation should be closely watched, the right decisions should be taken,” Novak said. He said Russia could step in if the market needs more supply. “Russia has potential to raise production by 300,000 barrels (per day) mid-term.”
U.S. shale companies increased hedging for 2020. U.S. shale companies took advantage of relatively high oil prices in the second quarter to lock in hedges beyond 2019, according to the Houston Chronicle and Wood Mackenzie. Permian shale drillers increased 2020 hedging by 431 percent in the second quarter of this year, an indication that E&Ps are worried about pipeline bottlenecks stretching beyond 2019. WoodMac says the hedging activity that far out is unusual. The risk of hedging is that some companies could eliminate upside exposure if pipelines are completed on time and oil prices rise.
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