Oil Prices Mixed for the Week

As reported on Rigzone on the 28th of June 2019, original article here.

Both the West Texas Intermediate (WTI) and Brent crude oil futures contracts edged downward Friday, but the WTI managed to stay in positive territory for the week.

August WTI futures shed 96 cents Friday to settle at $58.47 per barrel. The WTI peaked at $59.80 and bottomed out at $58.37. Compared to the June 21 close, the WTI is up 1.8 percent.

The September Brent contract price lost 93 cents, ending the day at $64.74 per barrel. For the week, the Brent is down less than one percent.

Ongoing tensions between the U.S. and Iran and the U.S. and China have dominated the oil market over the past seven trading days, with the prompt month contracts gaining slightly more than 10 percent during that period, said Tom Seng, Assistant Professor of Energy Business with the Collins College of Business at the University of Tulsa. He added, however, that an unexpectedly high U.S. crude inventory draw “gave some actual fundamental underpinnings” to the past week’s bullish trend.

“The market, post the Iran downing of a U.S. drone, has supported price levels not seen since late last month as traders fear an outbreak of military conflict in the region, which could adversely impact critical oil shipping lanes in the Strait of Hormuz,” said Seng, adding that “strong talk and saber-rattling” between the U.S. and Iran continue.

Seng also observed that recent attacks on Saudia Arabia’s oil pipelines have been confirmed to have originated from within Iraq, adding to tensions. Also, he pointed out that global markets in general have responded to the ebbs and flows of daily assessments of a possible U.S.-China trade deal. Furthermore, he said the U.S. stock market – a barometer of future energy demand – has fallen for much of the week but rebounded Friday. President Trump and Chinese President Xi Jinping were expected to meet during the G-20 Summit in Osaka, Japan that concludes Saturday.

“Prior to the Iranian downing of the U.S. drone, the market fundamentals were decidedly bearish as global inventories had been growing, the U.S. was producing record amounts of crude and China’s slacking economic growth painted a poor picture for global demand,” said Seng.

The latest U.S. Energy Information Administration (EIA) Weekly Petroleum Status Report, however, shocked the market, Seng continued. He pointed out the EIA report showed:

  • A 12.8-million-barrel decline in U.S. commercial crude inventories, well above 7.5-million-barrel and 2.6-million-barrel draws projected by the American Petroleum Institute and Wall Street Journal analysts, respectively
  • Total crude stocks at 470 million barrels – five percent higher than the average for this time of year
  • A year-on-year drop in oil imports of 1.7 million barrels, equating to 10 percent
  • 94.2 percent refinery utilization, or 500,000 barrels per day (bpd) lower than the year-ago level
  • U.S. oil production at 12.1 million bpd last week – a week-on-week increase

“The WTI/Brent spread now stands at around (negative) $7.50,” continued Seng. “It should be noted that, with some additional takeaway capacity having come online for Permian Basin crude, the differential to the NYMEX Cushing Hub futures contract is now trading positive across the months. In the past, that spread ran well into the negative teens and twenties.”

Despite recent solid bullish signals, Seng added that – technically – the WTI cannot pierce the critical $60-mark and the Brent cannot get to $70. Also, he said the WTI is trading above its five-day moving average and well above its 10- and 20-day moving averages. In addition, he pointed out the declining volume can reflect a lack of confidence by traders in current price levels and that a solid overbought condition exists in momentum indicators.

“Looking ahead, the market will still be focused on U.S.-Iran relations and any sort of positive development in the U.S.-China trade talks,” Seng said. “OPEC will meet on Monday and every expectation is that the cartel will extend current output quotas into the second half of this year.”

Reformulated gasoline (RBOB) fell slightly during Friday’s trading. July RBOB lost less than one cent to end the day at $1.94 per gallon. Week-on-week, RBOB is up approximately 6.5 percent.

Seng noted that U.S. inventories of total gasoline are at 232 million barrels – 9 million barrels lower year-on-year but higher than the five-year average for this time of year. He added, however, that retail prices are 18 cents per gallon lower than last year while NYMEX futures prices are approximately 13 cents lower for the period.

“The huge fire at the East Coast’s largest refinery in Philadelphia gave a boost to gasoline prices this week in a move separated from the rally in crude,” said Seng.

Henry Hub natural gas also edged downward Friday. The August gas futures price settled at $2.31, reflecting a two-cent decline. Natural gas is up 5.5 percent for the week.

“The August NYMEX futures contract for natural gas took center stage mid-week as July rolled off the calendar,” said Seng. “Warming temperatures gave some support to prices, but they still remain somewhat depressed languishing in the $2.30s.”

Seng also noted that EIA’s latest Weekly Natural Gas Storage Report revealed:

  • An injection last week of 98 billion cubic feet (Bcf)
  • 89.6 Bcf per day (Bcfd) of dry production last week – up 1.1 percent from the previous week – versus 84.1 Bcfd consumption
  • 5.8 Bcfd LNG exports – a small increase – and steady gas exports to Mexico at 5.2 Bcfd

“Look for an increase in power generation as more summer-like temperatures move across most of the rest of the U.S. in the coming days,” said Seng. “Technically, August natural gas is somewhat range-bound, trading around its five-, 10- and 20-day moving averages. Volume is increasing as this is now the front-month contract. Momentum indicators are showing a slight oversold condition.”

For any information or insights on developments in the industry please contact the Trainor Manpower team.