Oil Markets Show Little Reaction To Turkey Turmoil

Crude oil moved into the week at 46.63 showing little response to the crisis in Turkey. The terrorist attack in Nice has pressured the markets giving Brent oil a bit of momentum as it trades at 47.84. The strength of the US dollar limited oil’s gains. The failed coup attempt in Turkey Friday evening should be invisible in historical oil price charts, however, oil would likely have spiked sharply this coming week had it succeeded. Turkey’s importance to oil prices is not due to production or transit, but due to its geopolitical profile. Turkey, which straddles Europe and the Middle East, is not a major oil producer, but is an important pipeline area. Oil prices also rise generally during times of instability in the Middle East.

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Prices partly retraced their losses after China reported economic growth of 6.7 percent in the second quarter from a year earlier. The result was steady from the first quarter and slightly better than expected as the government stepped up efforts to stabilize growth in the world’s second-largest economy.

In the week ended July 15, the number of rigs drilling for oil in the United States totaled 357, up by six compared with the prior week and a total of 638 a year ago. Including 89 other rigs drilling for natural gas and one rig listed as “miscellaneous,” there are a total of 447 working rigs in the country, up seven weeks over week and down 410 year over year.

US crude production last week rose for the first time since early June and petrol and distillate stockpiles climbed, according to the Energy Information Administration.

“We have bullish news. We have bearish news. It’s a moody market,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said.

“The big bear case is we have this flood of product and it’s going to take some time to overwork that,” he said.

Oil has traded $44 to $51 a barrel since early May and has climbed from a 12-year low in February amid a string of supply disruptions including attacks in Nigeria.

While there’s still a consensus that the worst of the oil glut is over, the International Energy Agency cautioned this week that “the road ahead is far from smooth” amid seasonal weakness in demand and the return of some halted supply.

The International Energy Agency (IEA) said last week that the oil market is on its way to re-balancing, the agency also said that the re-balancing was not going to happen in the third quarter of 2016. U.S. crude oil stockpiles have dropped by nearly 14 million barrels since the end of May. The less good news for producers is that last week’s inventory of nearly 522 million barrels is still nearly 60 million barrels higher than the top of the five-year average range.

Iran’s crude oil exports to Japan surged 61% in May from a year earlier, the Iranian news agency Shana reported on Saturday, citing data from Japanese Ministry of Economy, Trade and Industry.

Japan took in 308,000 barrels per day (bpd) of Iranian crude in the period, 117,000 bpd more than what it imported a year earlier, the report said.

That put Iran on the fourth place behind Saudi Arabia, UAE and Qatar as the biggest exporters of crude to Japan which brought in 3.32 million bpd in May.

Saudi oil exports fell three percent in the period from a year earlier to 1.2 million barrels per day, according to the Japanese ministry data.

Iran’s oil production has already hit the highest level in the past five years. Since December, Iran’s oil production has climbed by 740,000 barrels a day to 3.63 million in June. Mohsen Qamsari of the National Iranian Oil Company (NIOC) said the country has regained about 80% of the market share it held before 2012.

Bank of America Merrill Lynch’s energy research team maintained its outlook for 2017 oil demand, saying it will grow by 1.2 million barrels per day to bring supply into a deficit. Brent will hit $55 a barrel by end-2016, it forecast.