MARKET WATCH: Oil prices fall slightly ahead of inventory jump

Light, sweet crude oil prices for November delivery edged down on the New York market Oct. 14 awaiting release of the weekly government crude oil and product inventory report, which was delayed 1 day later than normal because of the federal Columbus Day holiday on Oct. 12.

The inventory jump was larger than analysts had anticipated. The Energy Information Administration reported US commercial crude oil inventories, excluding the Strategic Petroleum Reserve, increased by 7.6 million bbl for the week ended Oct. 9 compared with the previous week.

The latest estimated total was 468.6 million bbl, the Petroleum Status Report showed. Separately, a survey done by Wall Street Journal in advance of the report showed analysts had expected supplies to rise by 2.6 million bbl.

“The ongoing high level of oversupply on the oil market is blocking any increase in oil prices,” Commerzbank analysts said in a research note before the inventory report was released.

Barclays analysts issued an Oil Report Special note on Oct. 14, saying current oil prices are too low to enable producers to fulfill anticipated future demand in coming years.

“Before long, prices will need to stop deterring supply and, instead, do the opposite,” said analyst Miswin Mahesh of Barclays in London. “We believe prices are likely to move higher, starting in the latter half of 2016, providing producers with incentives to mitigate the decline in existing supply.”

He sees Saudi Arabia’s response to a possible return of Iranian oil on the world market as being an important question during the next 2-3 years.

Oil production from Saudi Arabia, Libyan, and other members of the Organization of Petroleum Exporting Countries grew while Iran was under sanctions from Western powers.

“We do not expect acute price pressures from Iran’s return because Iran’s return is being priced in, and the quality of crude matters,” Mahesh said. “If US light production declines over the next 2 years, those medium and light West African barrels will shift back to North America, leaving room for Iran to reclaim some of its European market share.”

Gasoline supplies decline

Total US motor gasoline inventories decreased by 2.6 million bbl for the week ended Oct. 9, which EIA said was above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week.

Distillate fuel inventories decreased by 1.5 million bbl, which EIA called the middle of the average range for this time of year. Propane-propylene inventories rose 1.8 million bbl and were described as being well above the upper limit of the average range.

US refinery inputs averaged 15.3 million b/d during the week ended Oct. 9, which EIA said was 292,000 b/d fewer than the previous week’s average.

Refineries operated at 86% capacity last week. Gasoline production increased, averaging over 9.6 million b/d. Distillate fuel production decreased, averaging over 4.6 million b/d.

US crude oil imports averaged over 7.3 million b/d last week, up by 247,000 b/d from the previous week. Over the last 4 weeks, crude oil imports averaged 7.3 million b/d, lower by 1.7% than during the same 4-week period last year. Total motor gasoline imports, including both finished gasoline and gasoline blending components, last week averaged 719,000 b/d. Distillate fuel imports averaged 130,000 b/d.

Energy prices

The November crude oil contract on the New York Mercantile Exchange nudged down 2¢ to $46.64/bbl on Oct. 14 while the December crude oil contract edged up 1¢ to $47.16/bbl.

The natural gas contract for November gained 2¢ to a rounded $2.52/MMbtu. The Henry Hub, La., gas price was up 1¢ to $2.44/MMbtu.

Heating oil for November delivery was up 1¢ to rounded $1.48/gal. The price for reformulated gasoline stock for oxygenates blending for November was down less than a penny to remain at a rounded $1.31/gal.

The November ICE contract for Brent crude edged down 9¢ to $49.15/bbl, and the December contract was unchanged to remain at $49.69/bbl. ICE gas oil for November settled at $453.75/tonne, down $2.25.

The average price for the OPEC basket of 12 benchmark crudes was $45.21/bbl on Oct. 14, down 79¢.

Contact Paula Dittrick at

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

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