MARKET WATCH: Crude prices slide ahead of Sunday’s production freeze meeting

Crude oil prices on the New York and London markets appeared to be falling for a third consecutive day on Apr. 15 leading into Sunday’s production freeze meeting in Doha.

Many market observers remain skeptical about the efficacy of a potential agreement among members and nonmembers of the Organization of Petroleum Exporting Countries, particularly since Iran has maintained it will continue to ramp up oil output to pre-sanction levels.

Reports surfaced on Friday that Iran’s Petroleum Minister Bijan Zangeneh will not attend the meeting, and instead its OPEC Governor Hossein Kazempour Ardebili will represent the country.

In an Apr. 14 research note, analysts at Barclays said they believe “a vague agreement is likely,” giving producers time to weather the next couple of months before peak summer driving season.

“The Doha meeting does not materially change the oil market balances but makes official what is already meant to happen,” they explained.

“If recent supply-side fundamental support holds and the market’s expectations for a credible statement and commitment are met, the meeting could help prevent prices from falling back to the low $30[/bbl] range,” they said.

Skepticism lingers

WoodMackenzie issued a report on Apr. 14 saying a freeze would have limited “real results,” explaining that, “Even if an output freeze is announced, we do not expect a genuine one to occur during the remainder of 2016.”

In its most recent Oil Market Report, IEA said “if there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited.”

WoodMac expects OPEC production this year to be up 500,000 b/d, with 450,000 b/d from Iran and the rest from Iraq (OGJ Online, Apr. 14, 2016). The US Energy Information Administration’s Short-Term Energy Outlook, released this week, projects OPEC output to rise 600,000 b/d in 2016, with Iran accounting for most of the growth (OGJ Online, Apr. 12, 2016).

IEA noted that the pace of Iran’s return to the market is more measured than some expected, but Iranian output in March was still nearly 400,000 b/d higher than at the start of the year.

WoodMac doesn’t expect Iran to recover all of its 1 million b/d sanctions-related decline before 2017, even though the firm says the country has lifted output by 375,000 b/d since sanctions were lifted.

Non-OPEC drop, rebalancing market

Both WoodMac and IEA, however, see the market rebalancing anyway. “With or without an OPEC-non-OPEC freeze, the trend of lower global supply growth is already under way,” WoodMac said.

IEA for months has anticipated steady oil demand growth and falling non-OPEC supply, and now believes the “oil market looks set to move close to balance in the second half of this year.”

It said, “For now though, the main focus is on the supply side of the balance and our view held since the beginning of 2016 of forecast of a fall in non-OPEC supply in 2016 of 700,000 b/d looks to be spot-on.”

In its own Monthly Oil Market Report released Apr. 14, OPEC said non-OPEC oil output is falling faster than the cartel had expected (OGJ Online, Apr. 14, 2016). OPEC forecast non-OPEC production in 2016 to fall 730,000 b/d, a 30,000-b/d faster decline rate than OPEC’s March forecast.

EIA forecasts non-OPEC production to decline 400,000 b/d in 2016 and 500,000 b/d in 2017. Most of the forecast decline in 2016 is expected to be in the US, where EIA has revised down its projected total output by 100,000 b/d to 8.6 million b/d.  

EIA estimates that US crude production in March averaged 9 million b/d, down 90,000 b/d from the February level.

Separately, market observers await the Apr. 15 release of Baker Hughes Inc.’s US rig count. As of last week, the count had fallen 1,477 units since the overall drilling dive commenced following the week ended Dec. 5, 2014 (OGJ Online, Apr. 8, 2016).

Energy prices

The May crude oil contract on the New York Mercantile Exchange dropped 26¢ on Apr. 14 to $41.50/bbl. The June contract was down 34¢ to $42.67/bbl.

The NYMEX natural gas contract for May fell 6.6¢ to $1.97/MMbtu. The Henry Hub price was $1.91, down 7¢.    

Heating oil for May delivery declined 1.13¢ to a rounded $1.25/gal. The price for reformulated gasoline stock for oxygenates blending for May was down 2.39¢ to a rounded $1.51/gal.

The Brent crude contract for June on London’s ICE fell 34¢ to $43.84/bbl. The July contract declined 41¢ to $43.80/bbl. The May gas oil contract dropped 25¢ to $376.75/tonne.

The average price for the OPEC’s basket of 13 benchmark crudes on Apr. 14 was $38.58/bbl, losing 33¢.

Contact Matt Zborowski at matthewz@ogjonline.com.

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