Crude oil prices for October delivery settled at $38.24/bbl on the New York market Aug. 24, down $2.21 from the previous trading session, and Brent also dropped by more than $2/bbl on the London market to close at under $43/bbl for October delivery. Brent has fallen more than 30% since May.
“While oil fundamentals aren’t strong, physical markets do not corroborate the substantial weakness in flat price,” Morgan Stanley analyst Adam Longson of New York said in an Aug. 24 research report. The “latest oil-pricing pressure appears more financial than physical.”
Longson and analysts from other firms said concerns about a slowing economy in China, the world’s largest energy consumer, are causing oil prices to dip more than they believe is warranted.
“Despite poor headline macro-data, most China oil demand data points remain resilient,” Longson said.
Standard Chartered analyst Paul Horsnell in London said, “This is very, very macro-driven” with the focus on the outlook for China’s economy. “It’s not based on any kind of oil supply-demand fundamentals.”
The spread between the price of the first-month Brent contract and the front-month contract for light, sweet crude was $4.45/bbl as of Aug. 24 closings, which compared with a spread of more than $11/bbl in January.
Horsnell said the narrowing of the gap suggests that a supply surplus is smaller now than in January.
Meanwhile, Longson noted strong Asian demand for Middle Eastern crude, adding that prices for West African crude grades relative to Brent crude oil prices have strengthened recently.
The natural gas contract for September was down 2.6¢ to $2.65/MMbtu. The Henry Hub, La., gas price fell 6¢ to $2.64/MMbtu.
Heating oil for September delivery dropped nearly 7¢ to a rounded $1.39/gal. The price for reformulated gasoline stock for oxygenates blending for September was down 7¢ to a rounded $1.47/gal.
The October ICE contract for Brent crude dropped $2.77 to $42.69/bbl, and the November contract declined $2.71 to $43.49/bbl. The ICE gas oil contract for September dropped $14.25 to $428.50/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined on Aug. 24 to $40.67/bbl, down $2.33.
Contact Paula Dittrick at firstname.lastname@example.org.
*Paula Dittrick is editor of OGJ’s Unconventional Oil & Gas Report.