Fear of a glut in supply keeps the pressure on crude prices
London (July 19) Crude oil prices hovered around two-months low early Tuesday on continued worries that inventories of crude and fuels could remain elevated.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in August CLQ6, +0.49% at $45.05 a barrel, down $0.19, or 0.4%, in the Globex electronic session. September Brent crude LCOU6, +0.62% London’s ICE Futures exchange fell $0.24, or 0.5%, to $46.72 a barrel.
Oil prices dropped overnight after it was confirmed the attempted coup in Turkey over the weekend did not impede the flow of oil and gas. Any supply disruptions in the currently well-supplied market would have been taken as welcome relief to the current glut.
Analysts say prices are also under pressure as the wildfires in Canada, which helped take at least a million barrels of oil off the market at their height, had been contained.
“Should oversupply woes continue, we reckon that any risk-on sentiment seen from the bullish global equities (especially Wall Street overnight) would have a diluted effect on crude oil into the months ahead,” wrote Barnabas Gan, the economist and commodities analyst at OCBC.
The mismatch in supply and demand has haunted oil prices for two years, dragging prices sharply down from above $100 per barrel in mid 2014. Even though prices have risen since hitting $25 a barrel in February, the gain has not been fast enough to tighten the market amid sagging demand.
There is also growing anxiety that the rise in prices is prompting some U.S. shale producers to crank up output, a view underscored by the steady, albeit marginal, increase in the number of active rigs digging for oil in the U.S in the past six weeks.
For the week ended July 15, S&P Global Platts estimates U.S. crude stocks to have fallen 1.25 million barrels. The decrease, if confirmed by U.S. government data on Wednesday, will mark the eighth consecutive weekly contraction. However, the surplus to the five-year average has actually risen to 34.7% during this interval, said the firm, based on a survey of analysts.
The firm also tips a drop of 625,000 barrels in gasoline stocks and 875,000 barrels decrease in distillate stocks in the same week. Despite the fall in product stocks, inventories remains elevated and weaker margins have already driven some refiners to reduce their refining rate, the firm said.
Many energy companies are still facing financial headwinds as demand growth slows while global stockpiles of crude and refine products remain high, said Moody’s Investors Service.
“But our medium-term outlook for crude oil prices remains unchanged, despite the higher prices which have led us to revise upwards our estimated prices for crude over the next two years,” says Rachel Chua, a Moody’s Analyst.
“Our overall assessment is still that oil market participants are facing a difficult operating environment,” she added.
Nymex reformulated gasoline blendstock for August RBQ6, +0.22% — the benchmark gasoline contract — rose 34 points to $1.3906 a gallon, while August diesel traded at $1.3780, 2 points higher.
ICE gasoil for August changed hands at $404.25 a metric ton, up $2.50 from Monday’s settlement.