MARKET WATCH: Volatile NYMEX, Brent prices fall on Saudi comments

Light, sweet crude oil prices for April delivery fell $1.52 Feb. 23 to close at $31.87/bbl on the New York market and Brent crude oil prices fell $1.42 on the London market to close at $33.27/bbl after Saudi Arabian Oil Minister Ali al-Naimi said no production cuts are likely.

In other news Feb. 24, Fitch Ratings lowered the oil and natural gas price assumptions it uses to rate energy companies, reflecting the credit rating agency’s view that prices are increasingly unlikely to recover this year.

The Energy Information Administration estimated US commercial crude oil inventories, excluding the Strategic Petroleum Reserve, increased 3.5 million bbl for the week ended Feb. 19 compared with the previous week. The latest total was 507.6 million bbl, the Petroleum Status Report said.

Al-Naimi spoke Feb. 23 to participants at IHS CERAWeek in Houston where he was questioned about a recent agreement by Saudi Arabia, Russia, Venezuela, and Qatar to freeze production at January rates provided other producing countries also agree. The freeze proposal is the beginning of a process intended to rebalance supply and demand, he said.

“Cutting production is not going to happen,” he said. There will be another meeting in March to encourage more producing countries to join the proposed production freeze, he said (OGJ Online, Jan. 23, 2016).

Freeze is not production cut

But al-Naimi emphasized that a proposed production freeze is not a production cut.

“There is no sense in wasting our time seeking production cuts,” al-Naimi said. A freeze would allow ample world oil inventories to slowly shrink, he said, adding, “It’s going to take time.”

Separately, Iranian Oil Minister Bijan Zanganeh called the suggestion that his country would freeze production “a joke,” an oil ministry official said, confirming Iranian media reports.

On Feb. 24, Fitch said its new base case calls for Brent and West Texas Intermediate oil prices to average $35/bbl in 2016 compared with its previous base case of $45/bbl. The agency assumes a Henry Hub natural gas price of $2.25/Mcf for the year compared with its previous expectation of $2.50/Mcf.

“Our long-term base case price assumptions are unchanged at $65/bbl and $3.25/Mcf, respectively,” Fitch said. “The reduction is due to a combination of stock build-up over the mild winter, higher-than-expected [Organization of Petroleum Exporting Countries] production in January, and increasing evidence that global economic growth for the year will be weaker than we previously forecast.”

Fitch said, “This suggests there will still be a supply surplus in the second half of 2016, albeit reduced from current levels, and that markets will probably only reach a balance in 2017. Even then, very high inventories will limit price increases.”

But Barclays Research issued its “Blue Drum” research note, saying it expects Brent will average $33/bbl during the first half and will rise to $41.50/bbl during the second half of 2016 when analyst Miswin Mahesh expects oil market fundaments will tighten.

US gasoline inventories drop

EIA said total motor gasoline inventories decreased 2.2 million bbl for the week ended Feb. 19, but that level remains well above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased.

Distillate fuel inventories decreased 1.7 million bbl, and EIA said that level was above the upper limit of the average range for this time of year. Propane-propylene inventories fell 3.7 million bbl last week but are well above the upper limit of the average range.

Total products supplied during a 4-week period averaged more than 19.6 million b/d, up 0.2% from the same period last year. Over the past 4 weeks, motor gasoline product supplied averaged 9.1 million b/d, up 5.2% from the same period last year.

Distillate fuel product supplied averaged 3.5 million b/d during the last 4 weeks, down 16% from the same period last year.

US refinery inputs averaged 15.7 million b/d for the week ended Feb. 19, which EIA said was 163,000 b/d fewer than the previous week’s average. Refineries operated at 87.3% of capacity.

Gasoline production increased, averaging 10 million b/d. Distillate fuel production decreased last week, averaging more than 4.4 million b/d.

Crude oil imports averaged 7.8 million b/d for the week ended Feb. 19, down 117,000 b/d from the previous week. During the last 4 weeks, crude oil imports averaged 7.8 million b/d, which was 7% above the same 4-week period last year.

Total motor gasoline imports, including both finished gasoline and gasoline blending components, last week averaged 566,000 b/d, and distillate fuel imports averaged 242,000 b/d, EIA said.

Energy prices

The May crude oil contract on the New York Mercantile Exchange declined $1.44 to settle at $33.60/bbl Feb. 23.

The NYMEX natural gas contract for March was down nearly 4¢ to a rounded $1.78/MMbtu. The Henry Hub gas price dropped 1¢ to $1.83/MMbtu.

Heating oil for March delivery declined 3.3¢ to a rounded $1.02/gal. The price for reformulated gasoline stock for oxygenates blending for March dropped 3.4¢ to a rounded 97¢/gal on Feb. 23.

The May ICE contract for Brent crude was down $1.32 to settle at $33.97/bbl. The ICE gas oil contract for March was $302/tonne, down $15.25.

The average price for OPEC’s basket of 12 benchmark crudes was $28.94/bbl, down 54¢.

Contact Paula Dittrick at

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