MARKET WATCH: NYMEX crude oil price drops on inventory build

Crude oil prices for June delivery dropped modestly on the New York market on Apr. 22 to remain above $56/bbl for June delivery following another reported increase in US oil and product inventories. Meanwhile, statistics indicated slower manufacturing activity in China, a major oil consumer, last month than in March although the final April statistics have yet to be tabulated.

The preliminary HSBC China Manufacturing Purchasing Managers Index fell to a 1-year low of 49.2 during April compared with a final March reading of 49.6, HSBC said.

Separately, BP PLC’s trading arm expects world oil demand to reach 1.4-1.5 million b/d this year, but that demand level likely will not bring a significant, immediate rebound in price.

Large stock builds currently taking place could keep pressure on prices for months after supply and demand return to balance, Spencer Dale, BP’s chief economist, told the Wall Street Journal.

Separately, ExxonMobil Corp. Chief Executive Officer Rex Tillerson told IHS CERAWeek in Houston on Apr. 21 that he expects oil prices will remain low during the next few years.

Referring to natural gas, Tillerson noted that despite a marked decline in rigs drilling for gas in years past, US gas output today is higher than ever despite low gas prices.

“Clearly a significant decline in rig activity did not lead to a sharp drop in gas output,” Tillerson said. “Is that analogous in tight oil? We’ll find out.”

Tillerson believes the market currently is in a price-discovery phase to figure out the real cost of producing a barrel of shale oil, which is more expensive than conventional liquids. The downturn will “allow the market to determine where the marginal cost of supply is,” he said.

“Understanding how the resources really behave at a reduced level of investment is something we will all learn,” Tillerson said of unconventional producers.

The US Energy Information Administration reported Apr. 23 that gas in underground storage across the Lower 48 was a rounded 1.63 tcf as of Apr. 17. This represented a net increase of 90 bcf from the previous week.

Stocks were 737 bcf higher than last year at this time and 101 bcf below the 5-year average of a rounded 1.73 tcf, the weekly Natural Gas Storage report said.

Energy prices

The New York Mercantile Exchange June crude oil contract declined 45¢ on Apr. 22 to $56.16/bbl. The July contract dropped 31¢ to $57.57/bbl.

The natural gas contract for May climbed 3¢ to a rounded $2.61/MMbtu. The Henry Hub, La., gas price on Apr. 22 also increased 3¢ to $2.60/MMbtu.

Heating oil for May delivery gained 1.8¢ to a rounded $1.87/gal. The price for reformulated gasoline stock for oxygenates blending for May was up 3.6¢ to a rounded $1.92/gal.

The June ICE contract for Brent crude climbed 65¢ to $62.73/bbl, while the July contract was up 61¢ to $63.48/bbl. The ICE gas oil contract for May rose by $1.25 to $571/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was $58.09/bbl on Apr. 22, down 75¢.

Contact Paula Dittrick at

*Paula Dittrick is editor of OGJ’s Unconventional Oil & Gas Report.

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