MARKET WATCH: NYMEX crude oil prices settle nearly flat on lower rig count

Light, sweet crude oil prices settled nearly flat on the New York market on July 17 after a volatile trading session that started with prices going down until Baker Hughes Inc. reported a decline in the weekly rig count.

The US drilling rig count fell 6 units to reach 857 during the week ended July 17, essentially cancelling out the last 3 weeks’ worth of gains (OGJ Online, July 17, 2015).

Separately, Barclays analysts said oil prices have struggled as the market works toward rebalancing itself but existing hedges for many producers will have expired by Dec. 31, and current low prices limit producers’ ability to grow production.

“Recent events, including the Iran nuclear deal, the Greek referendum, and uncertainty regarding the economic implications of China’s stock market decline, have pressured oil prices. Over the past 2 weeks, both Brent and [West Texas Intermediate] futures curves experienced a sharp shift lower, bringing the 2016 and 2017 calendar strips to their lowest levels since the contracts were listed,” Barclays said in a July 20 note.

US producers rely upon calendar strip prices for hedging. Barclays noted recent strip prices for 2016 are below its 2016 forecast of $64/bbl average for light, sweet crude and $68/bbl average for Brent.

“Although there are risks to both the upside and the downside for crude, we believe that bullish factors will likely win out, and the 2016 and 2017 calendar strips will move higher from here,” Barclays said. “The market is in the process of rebalancing, and lower spot and forward prices are likely to expedite this, leading to higher prices in 2016-17,” than current forward strip levels.

Meanwhile, Barclays said low oil prices are hindering operators’ ability to increase US production. “Most producer hedging programs do not sufficiently cover production beyond 2015, so by yearend, most E&Ps will no longer have sizable cash cushions provided by hedges,” analysts noted.

Energy prices

The August crude oil contract on the New York Mercantile Exchange edged down 2¢ on July 17 to settle at $50.89/bbl. The September contract dropped 3¢ to $51.21/bbl.

The natural gas contract for August was up 1.6¢ to a rounded $2.87/MMbtu. The Henry Hub, La., gas price was $2.86/MMbtu, down 4¢.

Heating oil for August edged down less than a penny to a rounded $1.66/gal. The price for reformulated gasoline stock for oxygenates blending for August rose by 3¢ to a rounded $1.93/gal.

The September ICE contract for Brent crude increased 18¢ to $57.10/bbl on July 17. The October contract was up 16¢ to $57.47/bbl. The ICE gas oil contract for August fell $8 to $511.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes for July 17 was $53.99/bbl, up 24¢.

Contact Paula Dittrick at paulad@ogjonline.com.

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

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