MARKET WATCH: Front-month oil futures prices drop below $40/bbl

Crude oil prices on the New York and London markets were volatile in Apr. 18 trading, settling modestly lower on the first day of trading after a meeting of major producers in Qatar failed to result in any agreement on a production freeze that was proposed in February.

The contract for light, sweet crude for May settled just under $40/bbl on the New York market while Brent crude for June settled under $43/bbl.

“I am not at all surprised that there is no freeze,” Mayer Brown LLP energy partner Thomas Moore said Apr. 18. “The problem to me all along has been that it is difficult politically for Iran to agree to freeze production at pre-sanction release levels.”

Saudi Arabia refused to freeze its production unless Iran agreed to do the same. Iran officials repeatedly said they would not participate.

“I always thought that the effect of a freeze would be more psychological than real,” Moore said. “The result is that the Saudis will continue their strategy of trying to keep prices below the price at which high cost producers reenter the market, albeit at a lower price than they hoped to achieve with the freeze. The real impact of this will be felt in the US by the small and medium-sized independents.”

Moore expects “a significant number of bankruptcy filings for the rest of the year, including filings by some larger, more-established companies.”

Ole Hansen, head of commodity research at Saxo Bank, said he expects crude oil prices will remain range bound for the next few months. “During this time, I see limited downside risk to oil beyond $35/bbl,” he said.

“What could upset this equation is if Saudi Arabia turns its oil weapon on Iran,” Hansen said in reference to suggestions that the Saudis might enter a market-share battle with Iran. “If [the Saudis] decide to raise production to maintain market share, we could see the price drop back to the low $30s.”

Energy prices

The May crude oil contract on the New York Mercantile Exchange declined 58¢ on Apr. 18 to $39.78/bbl. The June contract was down 52¢ to $41.19/bbl.

The NYMEX natural gas contract for May gained 3.8¢ to $1.94/MMbtu. The Henry Hub price was $1.76/MMbtu, up 4¢.

Heating oil for May delivery rose 3.7¢ to a rounded $1.24/gal. The price for reformulated gasoline stock for oxygenates blending for May was down nearly 2.5¢ to a rounded $1.44/gal.

The Brent crude contract for June on London’s ICE fell 19¢ to $42.91/bbl. The July contract declined 29¢ to $42.77/bbl.

The average price for the Organization of Petroleum Exporting Countries’ basket of 13 benchmark crudes on Apr. 18 was $36.58/bbl, losing $1.47.

Contact Paula Dittrick at paulad@ogjonline.com.

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