MARKET WATCH: Brent crude oil drops below $50/bbl on OPEC doubts, US inventory

The Brent contract for December delivery dipped under $50/bbl in Oct. 26 trading on the London market while the light, sweet crude oil price for December delivery settled just above $49/bbl on the New York market.

Market participants were surprised by the US Energy Information Administration’s weekly inventory report, which showed US commercial crude oil inventories, excluding the Strategic Petroleum Reserve, had declined 600,000 bbl for the week ended Oct. 24 to an estimated total of 468.2 million bbl (OGJ Online, Oct. 26, 2016).

The crude supply drop was contrary to what analysts forecast. A survey by the Wall Street Journal showed analysts had expected a 2.1 million-bbl gain.

US oil production for the week ended Oct. 21 was 8.5 million b/d, up 40,000 b/d from the previous week, the Petroleum Status Report said. Lower 48 oil production accounted for 8 million b/d, up 28,000 b/d, while Alaska production accounted for 501,000 b/d, up 12,000 from the previous week.

Crude prices lost support upon growing doubts that the Organization of Petroleum Exporting Countries will be able to reduce the cartel’s production quotas as proposed in September. OPEC meets in Vienna on Nov. 30.

“Many traders in the market actually laugh at the thought that OPEC would ever reach a deal,” Michael McCarthy, chief markets strategist at CMC Markets in Sydney told the WSJ. “People don’t think the quotas will be observed,” even if a proposed production cut is finalized.

Jim Ritterbush, president of Ritterbush & Associates, said, “The price prop of an OPEC agreement appears to have been kicked from under the market for the time being in forcing the complex to focus on underlying fundamentals that remain bearish.”

Paul Horsnell, Standard Chartered global head of commodity research, said Standard Chartered forecasts Brent will average $55/bbl in the fourth quarter and will average $66/bbl for 2017.

Energy prices

The December crude oil contract on the New York Mercantile Exchange dropped 78¢ on Oct. 26 to close at $49.18/bbl. The January contract was down 77¢ to $48.83/bbl.

The natural gas contract for November fell 4¢ to a rounded $2.73/MMbtu. On the spot market, the Henry Hub gas price gained 1¢ to $2.68/MMbtu.

Heating oil for November fell 1¢ to a rounded $1.55/gal. The price for reformulated gasoline stock for oxygenates blending for November dropped nearly 2¢ to a rounded $1.48/gal.

The December Brent crude contract on London’s ICE declined 81¢ to settle at $49.836/bbl. The Brent contract for January fell 75¢ to $51.04/bbl. The November gas oil contract settled at $461.75/tonne, down 75¢.

The average price for OPEC’s basket of benchmark crudes on Oct. 25 was $47.75/bbl, down 8¢.

Contact Paula Dittrick at paulad@ogjonline.com.

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