Wednesday, 20 June, 2018

Crude oil prices ease on record US output, higher OPEC supplies

Comex Gold Weekly August Comex Gold
Lindsey Cook | 04 June, 2018, 09:02

Figures reported directly from OPEC members showed even deeper declines in production. Rapid oil price increases have preceded 10 of the 11 USA business cycle peaks since World War II; only in 1970, 1973 and 2003 - during or in the immediate aftermath of recessions - did a run-up in prices fail to herald the peak.

OPEC speculation, rising production and transport bottlenecks are combining to put a lid on USA oil prices.

While physical WTI crude is now at a strong premium to the futures, the opposite is the case when comparing paper Brent crude to the prices of similar physical grades. We agreed that there will be a certain oil output volume and quota if it does not harm worldwide investors.

"The U.S. crude complex has been recently undermined by a well-documented and potent cocktail of logistics constraints", PVM Oil Associates analyst Stephen Brennock wrote in a report.

That means an Asian buyer of physical WTI crude for loading in Texas is paying quite a significant premium over the price of paper oil in the futures market.

Also at the forefront of investors' minds is OPEC and its allies' next step on their agreement to curb output.

Saudi Arabia, effective leader of the Organization of the Petroleum Exporting Countries, and Russian Federation have discussed boosting output to compensate for supply losses from Venezuela and to address concerns about the impact of US sanctions on Iranian output. The proposal is yet to be approved by other partners, and officials from some nations have said they aren't in favor.

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US West Texas Intermediate crude gained 11 cents to stand at US$67.15 a barrel by 0702 GMT, bouncing off a session low of US$66.81 a barrel having fallen nearly 2% on Thursday. Total volume traded Friday was about 11 per cent above the 100-day average. On a most-active basis, Brent crude ended May with a 3.2% gain.

Brent for August settlement fell 47 cents to $77.12 a barrel on the London-based ICE Futures Europe exchange.

Quotes of WTI oil futures for July on Thursday morning decreased by $0,04 (0,06%) to $68,17 a barrel.

In addition to the EIA's numbers, which come close to matching those of top producer Russia, Baker Hughes disclosed in a report released Friday that US energy companies added two oil rigs in the week to June 1, bringing the total count to 861, the highest level since March 2015. Output has risen for 14 straight weeks as drillers put more rigs to work.

Baker Hughes will release a weekly report on the number of drilling rigs in the U.S. Last week, the U.S. oil producers increased the number of drilling rigs by another 15 to 859, which was the maximum value since March 2015.

While the paper futures market makes a compelling case for USA crude exports, pricing in the physical markets is far less convincing.

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