Oil at $100 imminent driven by record call trading with $90+ bets
Saudi is hesitant over pumping more oil fearing a new supply glut but more crude is being pulled from the market as US Sanctions on Iran materialize, which come into force on Nov. 4.
Oil producers might relish the opportunity that high oil prices bring in terms of budget and deficit relief.
But a perfect storm is building, and an oil price tsunami will slow economies as fuel inflation stiffens demand globally.
Supply and demand
OPEC decided against further production gains last weekend, although Saudi Arabia has indicated it would increase production in September and October.
“Saudi Arabia is also wary about creating a new supply glut, as the market will see a seasonal dip in demand in the winter,” says OilPrice.com.
“Riyadh is running the risk of a supply crunch in the fourth quarter, but Saudi officials fear the opposite problem if they increase production too much.”
Saudi had previously announced it has up to million bpd extra in reserve capacity and can produce up to 12.0-12.5 m million bpd.
Bloomberg reports that executives at the Asia Pacific Petroleum Conference in Singapore privately questioned Saudi Arabia’s ability to even go beyond 11 million bpd. “Near-term spare capacity is effectively maxed out,” Amrita Sen of consultant Energy Aspects Ltd. Said, as reported by OilPrice.com.
Where are oil prices going?
CEO of Total SA Patrick Pouyanne says $100 oil is possible but isn’t excited about it. “I’m not sure it’s a good news,” he told Bloomberg. “Even for the oil industry, because you know, when prices go too high, then you open the door to your competitors,” while demand will likely decline, he said, referring to US shale production.
Bloomberg also noted that the number of Brent options has surged to its highest ever, “driven by record call trading, including bets on $100.”
Hedge funds increased their bullish wagers on U.S. crude in the week to Sept. 25, data from the U.S. Commodity Futures Trading Commission (CFTC) showed on Friday, increasing futures and options positions in New York and London by 3,728 contracts to 346,566 during the period, CNBC reports.
“Oil traders Mercuria and Trafigura see global production losses of about 2 million barrels per day and 1.5 million bpd, respectively, mostly related to Iran sanctions,” said Bloomberg.
According to CNBC, Brent crude oil prices rose to their highest since November 2014, with
Benchmark Brent crude oil futures rising to as much as $83.27 a barrel up 48 cents or 0.6% from their last close.
U.S. West Texas Intermediate (WTI) crude futures were up 32 cents, or 0.4%, at $73.57 a barrel.
ANZ bank said on Monday that “the market is eyeing oil prices at $100 per barrel”.
China’s Sinopec said it is halving loadings of Iranian crude oil this month.
Reuters reported that Investors have indicated that they see prices rising, loading up on options that give the holder the right to buy Brent crude at $90 a barrel by the end of October.
According to Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore, prices could “rocket higher with the flashy $100 per barrel price tag indeed a reasonable-sounding target” if investors doubted the Saudis ability to respond with enough extra output, he said.
Electricity in the air
Elon Musk has been sued by the U.S. Securities and Exchange Commission (SEC) for fraud related to Musk’s tweet about possibly taking Tesla private.
OilPrice.com said that a new battery could break lithium dependence.
“A new battery from NantEnergy, headed by the California billionaire Patrick Soon-Shiong, operates on only zinc and air, and may even cost less than lithium-ion batteries. The zinc battery could allow the energy storage industry to move beyond lithium, where production is concentrated in just a handful of countries and is expected to struggle to keep up with demand.”