MARKET WATCH: Oil prices drop pending US inventory, world oil oversupply concerns

Light, sweet crude oil prices for April delivery on the New York market dropped more than $1/bbl to settle above $36/bbl on Mar. 8, giving up much of the previous day’s gains. Analysts said world oil supplies remain robust while a supply-demand recovery still has yet to begin.

Market observers awaited the Mar. 9 release of the weekly US oil and product inventory numbers from the Energy Information Administration.

On Mar. 8, Goldman Sachs Group Inc. analysts said a price of $40/bbl oil is unsustainable and low prices will linger until the market begins to fully recover during the second half.

“Energy needs lower prices…to finish the rebalancing process; otherwise, an oil-price rally will prove self-defeating as it did last spring,” Goldman Sachs said in a research note.

Separately, Barclays Capital Inc. analysts issued a note saying a recent trip by some of its analysts to the Middle East “highlighted the heightened pressures and difficult policy tradeoffs that the region faces in a low-price environment.”

They said low oil prices are causing Middle Eastern producers to shift their focus from exploration to development activities. Energy investments continue in the Middle East, Barclays said, noting that the emphasis is on maximizing current production levels.

“Saudi Arabia’s planned production capacity additions are continuing but they are not at a scale that will represent a net addition to their current maximum sustainable production capacity by 2020,” Barclays said. Analysts see the Saudi rig count staying flat at 220 through 2016.

Kuwait will commit to an oil production freeze only if major oil producers, including Iran, agreed to join the pact, Anas al-Saleh, Kuwait’s acting oil minister, told reporters in Kuwait Citi on Mar. 8.

“If there is an agreement, Kuwait will commit to the freeze,” he said, adding that without a freeze agreement by all producers, Kuwait will “go full power.” Currently, Kuwait produces 3 million b/d, he said.

Energy prices

The April crude oil contract on the New York Mercantile Exchange dropped $1.40 to settle at $36.50/bbl on Mar. 8. The May contract declined $1.40 to $38.42/bbl.

The NYMEX natural gas contract for April was up 2¢ to a rounded $1.71/MMbtu. The Henry Hub gas price for Mar. 8 was $1.55, up 3¢.

Heating oil for April delivery fell 2¢ to a rounded $1.20/gal. The price for reformulated gasoline stock for oxygenates blending for April declined nearly 0.5¢ to remain at a rounded $1.39/gal on Mar. 8.

The Brent crude contract for May on London’s ICE dropped $1.19 to $39.65/bbl. The June ICE contract fell $1.24 to settle at $40.24/bbl. The ICE gas oil contract for March was $359.75/tonne, up $4.75.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was $35.07/bbl, up 64¢.

Contact Paula Dittrick at

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