Markets in bullish territory despite some concerns

Syed Rashid Husain OIL markets are knocking at $40 mark, rising more than 6 percent on Friday to end with the biggest weekly gain in a month. At the close, Brent crude futures settled up $2.51, or 6.4 percent, at $41.94 a barrel, hitting a session high above $42. US crude futures too closed up $2.46, or 6.6 percent, to $39.72. Earlier, it rose to nearly $40. For the week, both benchmarks rose about 8 percent, their most since the week ended March 4. A real turnaround indeed - from close to $27 a barrel, late in January. Markets are definitely in bullish territory. Hope has been rekindled. Expectations from the upcoming April 17 Doha moot is turning positive. And although it may not alter the fundamentals, in real sense, yet the very talk of output freeze has helped firm up the crude oil markets considerably. And thus despite the fact that confusing and contradictory signals are still coming out about the outcome of Doha initiative, yet most stake holders realize, how important it is to conclude the moot on the 17th on a positive note. The meeting must emit a positive signal, they know fully well. Indeed after all the hype, any misstep on the day could crash the markets. And this could be disastrous for all. Yet, despite the positive market sentiments, pre-positioning seems on. Iran ramped up production massively last month, underlining that production of oil in the country has passed two million barrels per day since sanctions by Western nations were lifted in January. That increase in production - around 250,000 bpd since March 1 - contributed to the overall glut. In the meantime, Iran ratcheted up its offense in the oil market after breaking a pricing tradition, Bloomberg reported. State-run National Iranian Oil Co. will sell the Forozan Blend crude for May to Asia below the level offered by Saudi Aramco for Arab Medium. This would be the third month the Tehran was giving the discount after setting it at a premium for almost seven years through February 2016, data compiled by Bloomberg indicated. NIOC will also sell the Iranian Light grade to Asian customers at 60 cents below Middle East benchmark prices, a company official said on Friday, asking not to be identified because of internal policy. NIOC is set to sell the Forozan Blend in May for Asian customers at $2.43 a barrel below the average of the Oman and Dubai benchmark grades, according to the company official. That’s 3 cents lower than Saudi Aramco’s price for the similar Arab Medium variety for a third month, data compiled by Bloomberg show. Forozan was at a premium of 7 cents to the Saudi oil for February sales. Iranian Shana news service, citing Oil Minister Bijan Namdar Zanganeh, said Iran planned to boost production to 4 million bpd by end March 2017 - before joining any output freeze agreement. On the other hand, Saudi Arabia too continues to insist it will freeze output only if it’s joined by other suppliers, including Iran. However, Kuwait has been signaling a deal doesn’t hinge on Tehran. Some other factors also seem to have contributed to the recent firming up of the crude markets. US crude stockpiles fell by nearly 5 million barrels last week versus analysts’ forecasts for a build of 3.2 million barrels. Markets took this as a sign that glut could be easing. Signs were also emerging that the US output was falling down as, energy companies cut oil drilling rigs for a third week in a row, adding to improving fundamentals. Bank of America Merrill Lynch said in a note that US shale production was in "freefall." The outage at the Keystone pipeline too removed 590,000 barrels per day from the market. The pipeline was scheduled to resume operating on Tuesday. The shutdown of the Keystone crude pipeline to Cushing, Oklahoma also supported US crude futures. Aside from planned oilfield maintenance works in Norway and Britain, Brent in the meantime, also got support from last month's disruptions in Nigerian supplies at a venture operated by Royal Dutch Shell. Oil also drew support from reports that Russia's oil production could fall this month. Russian Energy Minister Alexander Novak too appears confident of striking a deal in Doha on 17th - underlining last Monday that he may meet his Saudi Arabian counterpart before the planned oil producers' meeting in Doha on April 17. Indeed Novak wants the moot to get to a conclusion.  Novak hence hoped that a common position would prevail at the oil producers' meeting. "I hope that in this case a common position will prevail during the discussions and all sides will come to an agreement...especially given that Iran has confirmed its participation," he said. Yet concerns about the oil market glut – have not evaporated. Some continue to warn that oil prices could fall again, dragged down by a glut that will take time to clear and soaring production outside the United States, especially in parts of the Middle East. "We believe the current oil price is unsustainable and expect a fundamental price recovery when markets move into better balance in mid- to late-2H16," investment bank Jefferies said, adding that "the recovery could be protracted." Last week Iraq too announced that exports from its southern ports had hit almost 3.5 million bpd by April, up from an average of 3.29 million bpd in March, putting doubts on output freeze arrangement. ANZ bank too said that there were signs that a renewed downtrend could be imminent for crude oil prices. "Investors are lacking confidence about improved US seasonal demand, as a decline in US crude stockpiles (reported earlier this week) was mainly attributable to weaker imports and improved refinery utilization," ANZ bank said. The ample supplies were reflected in physical markets, with Abu Dhabi cutting its March retroactive official selling price premium over benchmark Dubai crudes by 64 cents to $3.06 per barrel. This followed top exporter Saudi Arabia lowering its May Arab Light crude OSP by 10 cents per barrel to a discount of $0.85 per barrel to the Dubai average. Too much seems hinging on April 17 moot. Eyes thus remain focused on Doha.