Oil prices fall as uptick in U.S. production seen
London (Aug 10) Crude prices traded lower Wednesday, as traders and investors were discouraged by the upward revision in the outlook for U.S. crude production.
Also weighing on sentiment were concerns that the upcoming meeting among major oil producers may not yield any action to reduce the global glut.
On the New York Mercantile Exchange, crude futures for delivery in September CLU6, -0.40% traded at $42.20 a barrel, down 57 cents, or 1.3%. October Brent crude LCOV6, -0.09% on London’s ICE Futures exchange was lower by 51 cents, or 1.1%, to $44.47 a barrel.
For more than two years, strong oil production by the Organization of the Petroleum Exporting Countries and those outside the bloc, such as U.S. and Russia, created an overhang that dragged prices to as low as $26 a barrel in February.
Data in recent months show that the price collapse eventually caught up with the producers. However, after a period of declining production, the U.S. Energy Information Administration now expects the trend to reverse, estimating output to average 8.73 million barrels a day this year and 8.31 million barrels a day next year, up from its previous forecast of 8.61 million per day and 8.2 million a day, respectively. In 2015, U.S. producers pushed out an average 9.4 million barrels a day.
“After a steep drop over the past year in U.S. oil production, a recent uptick in the number of rigs drilling for oil is expected to contribute to more steady monthly oil output starting this fall,” EIA Administrator Adam Sieminski said in a statement.
Weekly report on U.S. crude storage and output will be released later today. A Wall Street Journal survey estimates crude and gasoline stocks to have fallen by 800,000 barrels, respectively in the week ended Aug 5.
The American Petroleum Institute, an industry group, said late Tuesday that its own data showed a 2-million-barrel increase in crude supplies, and a 4-million-barrel decline in gasoline stocks.
Exacerbating the glut concern is OPEC’s own production, which some analysts believe has increased last month. The group’s July monthly report will also be released later today. The International Energy Agency’s monthly oil report will be released Thursday.
The recent increase in global output has upended many analysts’ earlier prediction that the oil market is tightening. Goldman Sachs in May even said the oil market has flipped to a deficit.
Opinion: This oil bear says prices are headed back below $30
Prolonged low oil prices have had damaging effects on the national coffers of several countries. Venezuela, for example, is facing the deepest recession in its history--as well as hyperinflation and severe food shortage. Energy companies have also reported net losses and announced cancellations of projects.
The market is skeptical that the upcoming meeting of OPEC officials in late September would result in a coherent effort to combat the low prices, noting that the cartel has failed in the past to agree to a production freeze despite the pre-meeting hypes.
Even if a freeze pact is reached, the impact on prices could be limited because most of the producers are already producing at a full tilt and have little spare capacity to expand, said Thomas Pugh, commodities economist at Capital Economics.
“Lost credibility will take time to rebuild and, given the increasing headwinds to physical intervention, the group will struggle to regain its full pricing power within the foreseeable future,” BMI Research said in a note.
Nymex reformulated gasoline blendstock for September RBU6, +1.23% — the benchmark gasoline contract — rose 0.1% to $1.35 a gallon.
Source: MarketWatch
