MARKET WATCH: NYMEX, Brent crude oil prices drop more than $2/bbl

Crude oil prices tumbled more than $2/bbl on both London and US markets July 5 as US traders and investors returned to work after a July 4 holiday. They expressed concerns that a climbing US rig count might mean a slowing in the US production decline rate despite ample world oil supplies.

Baker Hughes Inc. reported the US drilling rig count rose for the week ended July 1 by 10 units, tallying 431 rigs working. The oil-directed rig count was up 11 to total 341, a 25-unit increase since May 27. Compared with its Oct. 10, 2014, peak, the total was down 1,268 units (OGJ Online, July 1, 2016).

Meanwhile, uncertainty about global economies could slow oil-demand growth, analysts said. The June referendum in which UK voters requested to exit the European Union has prompted concerns about instability in Europe and strengthened the US dollar.

The Wall Street Journal Dollar Index was up 0.4% early on July 6 after rising 0.6% on July 5. Oil is traded in dollars so a stronger dollar makes oil more expensive for buyers using other currencies.

“Driven by renewed fears over economic contagion from the UK’s decision to exit the European Union and severe problems in the Italian banking sector, global risk assets were down across the board,” JBC Energy consultant of Vienna said in a research note.

Meanwhile, US natural gas prices also dropped July 5, which analysts attributed largely to concerns about weakening demand. The price drop came after front-month gas futures hit a 1-year high of $2.99/MMbtu on July 1.

Raymond James & Associates raised its 2016 average price forecast to $2.47/MMbtu from $2.05/MMbtu. On July 5, RJA also revised its 2017 gas price forecasts to $3.25/MMbtu from $2.65.MMbtu.

“The lingering effects of lower drilling activity in 2016 and the constrained US rig count have shifted our gas-production outlook meaningfully lower,” RJA analysts said.

Separately, analysts said it will take time to see if Libya really increases its production and oil exports. The chairman of Libya’s National Oil Corp. and his counterpart appointed by the government in Bayda agreed to unify the state company under a single-management structure.

Mustafa Sanalla, head of NOC in Tripoli, will continue as chairman. The unified company will be based in Benghazi, an NOC news release said (OGJ Online, July 5, 2016).

“I am not convinced the announcement about the reunification of the two rival NOCs will actually deliver any increase in production any time soon,” Richard Mallinson, an analyst at Energy Aspects Ltd. in London, told Bloomberg.

Energy prices

The crude oil contract for August on the New York Mercantile Exchange toppled $2.39 on July 5 to settle at $46.60/bbl. The September contract fell $2.36 to $47.29/bbl. Traders attributed some price volatility to thin trading volumes on July 1 and July 5. US markets were closed for the July 4 holiday.

The natural gas contract for August declined 2¢ to close at a rounded $2.76/MMbtu. The Henry Hub gas price was $2.82/MMbtu on July 5.

Heating oil for August delivery declined 6.6¢ to a rounded $1.45/gal. The price for reformulated gasoline stock for oxygenates blending for July was down 8¢ to a rounded $1.43/gal.

The September Brent crude contract on London’s ICE dropped $2.14 on July 5 to $47.96/bbl. The contract for October dipped by $2.12 to $48.57/bbl. The July gas oil contract for July 5 was $418.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was unavailable for July 5.

Contact Paula Dittrick at paulad@ogjonline.com.

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