MARKET WATCH: Oil futures climb modestly on US inventory decline

The price for light, sweet crude oil for September delivery rose modestly on the New York market July 29 after a weekly US Energy Information Administration report showed an estimated decline in crude oil supplies.

Commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, decreased 4.2 million bbl for the week ended July 24 compared with the previous week (OGJ Online, July 29, 2015).

Regarding natural gas in underground storage across the Lower 48, EIA estimated levels at 2.88 tcf as of July 24, which was a net increase of 52 bcf from the previous week. Stocks were 586 bcf higher than last year at this time and 85 bcf above the 5-year average of 2.79 tcf, the Gas Storage Report showed.

Meanwhile, the July 29 settlement for crude oil prices marked the second consecutive trading session in which crude prices ended higher in New York following several days of declines, which analysts said was based primarily upon concerns about ample world oil supplies.

Han van Cleef, senior energy economist for ABN AMRO in Amersterdam, said several negative drivers are responsible for the oil price slide including disappointing demand from China, flat demand in Europe, and only slightly rising US demand. In addition, the dollar is strengthening against the euro.

“It is difficult to see any upward potential for oil prices in the near term,” he said. “In fact, if the negative sentiment persists—or even worsens following new data—the price could retreat even further. A test of January’s lows can therefore certainly not be ruled out.”

World oil markets have been oversupplied for some time, but van Cleef noted Saudi Arabia and Iraq have stepped up production this year, bringing current production from the Organization of Petroleum Exporting Countries to nearly 32 million b/d compared with its quota of 30 million b/d.

ABN AMRO maintained its 2015 forecast of $60/bbl average for Brent and $55/bbl average for US light, sweet crude. But van Cleef lowered his 2016 oil price forecast to average $65/bbl for Brent and $60/bbl for light, sweet crude.

“We still foresee a recovery with the market returning to equilibrium (with lower oversupply, mainly due to marginally higher demand and a weaker dollar) in the course of 2016,” van Cleef wrote in his Energy Monitor August note. “However, the oversupply will remain larger than previously expected. The equilibrium will therefore not be seen before the second half.”

Energy prices

The September crude oil contract on the New York Mercantile Exchange rose 81¢ on July 29 to settle at $48.79/bbl. The October contract was up 75¢ to $49.16/bbl.

The natural gas contract for August was up 6.5¢ to a rounded $2.89/MMbtu. The Henry Hub, La., gas price was up 2¢ to $2.90/MMbtu.

Heating oil for August delivery fell by less than a penny to remain at a rounded $1.60/gal. The price for reformulated gasoline stock for oxygenates blending for August rose by nearly 2¢ to reach a rounded $1.82/gal.

The September ICE contract for Brent crude gained 8¢ to $53.38/bbl on July 29. The October contract was up 18¢ to $54.04/bbl. The ICE gas oil contract for August was up 25¢ to $495.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes for July 28 was $50.82/bbl, up 28¢.

Contact Paula Dittrick at paulad@ogjonline.com.

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

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