MARKET WATCH: NYMEX December crude direction uncertain on IEA comment

Oil futures for December settled below $44/bbl on the New York market Nov. 9, which was the lowest since Oct. 27. In early Nov. 10 trading, prices swung up and down after the International Energy Agency suggested oil prices could stay depressed for another 5 years.

In its World Energy Outlook, the International Energy Agency said “a lasting switch in OPEC production strategy in favor of securing a higher share of the oil market mix” could keep Brent crude prices around $50/bbl through 2020.

If world oil oversupply were to begin to balance, then IEA suggested Brent prices could rebound to about $80/bbl by 2020. The Organization of Petroleum Exporting Countries is slated to meet in Vienna in December.

Oil prices have dropped more than 40% during the past year amid speculation that global oversupply will persist because OPEC members continue to produce above their production quota.

China imported about 6.23 million b/d of oil during October, down 8.8% on the month, according to statistics released from the Chinese government.

Separately, Barclays analyst Chi Zhang in Hong Kong issued a research report saying China’s strategic petroleum reserve program is considered nontransparent by many, and lack of information on China’s SPR stockpiling generates significant interest in the program’s ability to balance the oil market.

“Associated concern about energy security likely means that China will continue to fill the SPR through 2020,” with intentions to cover 90 days of net oil imports, Zhang said.

Barclays estimated that China should be able to reach the 550 million bbl SPR target by 2020.

“We forecast the SPR will add an average of 180,000 b/d to China’s normal annual oil demand,” Zhang said. “SPR purchases are sensitive to oil prices. Assuming oil prices remain low, we expect this purchasing to accelerate to 230,000 b/d in 2016 as new capacity becomes available, but it is likely to moderate in the medium term on potentially higher oil prices.”

China made large SPR purchases in 2008-09 when oil prices were low, Barclays noted.

“Despite perceptions, China’s SPR stockpiling, while not trivial, is likely to have only a minor influence on the market balance and oil price volatility, in our view,” Zhang said.

Energy prices

The December crude oil contract on the New York Mercantile Exchange dropped 42¢ on Nov. 9 to $43.87/bbl. The January crude oil contract was down 35¢ to $45.12/bbl.

The NYMEX natural gas contract for December dropped 7¢ to a rounded $2.30/MMbtu. The Henry Hub gas price was down 3¢ to $2.13/MMbtu.

Heating oil for December delivery fell 1.2¢ to $1.48/gal. The price for reformulated gasoline stock for oxygenates blending for December edged up a fraction of a penny to remain at a rounded $1.37/gal.

The December ICE contract for Brent crude was down 23¢ to $47.19/bbl. The January contract dropped 25¢ to $47.92/bbl. The ICE gas oil contract for November closed at $448/tonne, down $1.25.

The average price for the OPEC basket of 12 benchmark crudes for Nov. 9 was $42.13/bbl, down 69¢.

Contact Paula Dittrick at

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

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