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Uncertainty rules oil market as sentiment is more subdued

Brent crude was holding above US$50 while WTI fell below US$50 a barrel.
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Watch out for Q3 earnings next week

Sentiment on the oil market was subdued this week as uncertainty ruled the day.

A scheduled technical gathering of OPEC and a meeting of OPEC and non-OPEC players in Vienna preoccupied the market and in early trading on Friday, Brent crude was holding above US$50 while WTI fell below US$50 a barrel.

The conversation among oil producers continues on a daily basis and the private meetings in Vienna will be another step to help clarify the numbers.

In the event of a cut or a freeze in Vienna at the end of November, this will be the first time in eight years where the organisation takes corrective action on oil supply.

OPEC’s Barkindo concerned about oversupply

The OPEC Secretary General, Mohammed Barkindo has expressed his concern about the oversupply on the market and he is eager to lead his own organisation and coordinate assistance from other willing parties to help correct the global glut and sustained low price.

The intended freeze of production as agreed in Algeria in September would see collective OPEC production frozen at 32.5 to 33 million barrels a day. 

Currently, OPEC supply is above 33 million barrels a day.

Many key OPEC members have suffered economic or political turmoil that has hampered production in recent years and they are now looking for exemptions to the deal.

Iraq, Iran, Nigeria and Libya want special consideration

With Iraq, Iran, Nigeria and Libya looking for special consideration, that leaves a bigger burden on the remaining countries, many that are also suffering economic hardship.

The main pressure to reduce output will likely fall on Saudi Arabia and while the country’s energy minister Khalid Al-Falih believes a solution can be found, his own country has been slashing domestic spending budgets due to low oil prices in recent years.

Getting a commitment from the Russians would go a long way to improving sentiment, but many analysts are skeptical as Russia’s commitment to support any reduction has been inconsistent in the past few weeks.

A note from the research department of Commerzbank earlier this month said it would be surprised if the Russians agreed to cut their oil production, mainly because many of the key companies are privately owned.

Russia is currently producing around 11.2 million barrels a day.

American crude inventories were down this week by 600,000 barrels, according to the Energy Information Administration.

The EIA says we can expect further draw-downs as refiners return from seasonal maintenance. Gasoline exports had a good week.

Watch out for Q3 earnings

The market will take any good news it finds as the major oil companies deliver third quarter earnings next week.

Analysts are expecting declines of up than 80 percent compared to last year, but are being optimistic that strength is returning to the market, with the possibility of a review in capital spending from some key players.

Norway’s Statoil reported a loss of more than 70 percent from this time last year, below analysts’ expectations.

ConocoPhillips reported a loss of US$1billion for the third quarter, slightly less than last year but the company continues to cut its 2016 capital spending plan.

Two other American international oil companies, Exxon and Chevron will report results later on Friday.

Both companies have outperformed the S&P 500 index this year with shares up around 12 percent so far this year.

The energy sector of the S&P 500 is up around 15 percent this year. European players Eni and Total will also report on Friday with Shell and BP next week.

The market is getting more optimistic about oil company performance in the final quarter of 2016 and in the year ahead, but much caution remains.

In the short term, it will take a commitment from OPEC and non-OPEC to help bring much needed stability back to the market.

© oil Capital 2018

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