MARKET WATCH: Crude prices tick upward on disappointing US jobs data

A lackluster week for crude oil prices appeared to be ending with some upward movement following release of data showing smaller-than-expected US job growth.  

The US Department of Labor said on Sept. 2 that the economy added just 151,000 jobs in August, roughly 30,000 fewer than economists had expected. The disappointing number may prevent the US Federal Reserve from raising interest rates this month, the prospect of which had weighed on oil prices in recent days.

A resulting weaker dollar would provide some relief for an oil market that has been lagging because of continued oversupply concerns (OGJ Online, Sept. 1, 2016). The WSJ Dollar Index, which measures the greenback vs. a basket of other currencies, was up 0.6% in August, but declined early on Sept. 2 upon news of the jobs data.  

Fresh in the minds of market observers are rising US crude inventory levels and increasing ambivalence toward a meeting between the Organization of the Petroleum Exporting Countries and other producers in Algeria later this month during which the market will be informally discussed.

Hans van Cleef, senior energy economist for ABN AMRO, believes “no freeze in production growth whatsoever” is the likeliest scenario from the meeting.

“A likelier outcome is that the oil-producing countries will continue monitoring the market closely for the time being, but will consider it too early to freeze production growth at this stage,” he said in a note on Sept. 2. “If necessary, they can still agree on production restrictions at the official OPEC meeting on [Nov. 30] in Vienna.”

He predicts oil prices will remain volatile in the coming weeks without the market settling on a clear direction. For the end of the third quarter, van Cleef sees Brent and West Texas Intermediate prices averaging $50/bbl, with more “upward potential” in the fourth quarter and into next year.

“Any anticipation in the market of a structural decrease in the current oversupply—or even a shortfall—will provide support for the oil price,” he said. “It is impossible to provide an exact timeline, but we do expect the oil price to rise towards [$65-75/bbl] by 2017.”

Production outages this week in the US Gulf of Mexico caused by what has become Tropical Storm Hermine have eased as the storm took an eastward turn away from oil and gas producing areas (OGJ Online, Sept. 1, 2016).

Analysts now await the midday Sept. 2 release of Baker Hughes Inc.’s latest tally of active drilling rigs in the US. Last week, the count of oil-directed units was flat at 406, still up 90 units since May 27 (OGJ Online, Aug. 26, 2016). Oil-directed rigs haven’t recorded a decline since June.

Lower gasoline, natural gas prices

Labor Day weekend in the US marks the end of the summer driving season and thus its seasonal increase in gasoline demand. The US average retail price for regular gasoline on Aug. 29 was $2.24/gal, the lowest price on the Monday before Labor Day since 2004, according to data from the US Energy Information Administration.

“Lower crude oil prices are the main factor behind falling US gasoline prices,” EIA explained. “Lower crude oil prices reflect continued high global crude oil and petroleum product inventories and increased drilling activity in the United States.”

EIA, meanwhile, estimates natural gas in underground storage across the Lower 48 as of Aug. 26 was up 51 bcf from the previous week’s total to 3.401 tcf, an increase of 238 bcf year-over-year and 334 bcf from the 5-year average.

Accordingly, the natural gas contract closed almost 10¢ lower on Sept. 1.

Energy losses on Sept. 1

The October crude oil contract on the New York Mercantile Exchange declined $1.54 on Sept. 1 to close at $43.16/bbl. The November contract lost $1.56 to $43.75/bbl.

The natural gas contract for October decreased 9.5¢ to a rounded $2.79/MMbtu. On the spot market, the Henry Hub gas price was $2.91/MMbtu, down 3¢.

Heating oil for October dropped 4.38¢ to a rounded $1.38/gal. The price for reformulated gasoline stock for oxygenates blending for October fell 6.1¢ to a rounded $1.27/gal.

Both the November and December Brent crude contracts on London’s ICE lost $1.44 to settle at $45.45/bbl and $45.83/bbl, respectively. The September gas oil contract dropped $12.50 to settle at $402/tonne.

The average price for OPEC’s basket of 12 benchmark crudes on Sept. 1 was $42.04/bbl, falling 1.87¢.

Contact Matt Zborowski at matthewz@ogjonline.com.

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