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US-ENERGY-OIL-PRICE
Oil prices drop mainly due to higher supply from OPEC, Russia
HOUSTON, Aug. 6, 2018 (BSS/Xinhua) — The oil prices had a slightly
downtrend movement in the week ending Aug. 3, posting a fourth loss in the
past five weeks.
The price of the West Texas Intermediate (WTI) for September delivery and
Brent for October delivery decreased by 0.75 percent and 2.10 percent,
respectively, in the week. At the end of the week, WTI settled at 68.49 U.S.
dollars, while Brent settled at 73.21 dollars.
Oil prices started the week with gains due to the focus on supply
disruptions and a potential impact of U.S. sanctions on Iranian crude oil
output. Meanwhile, the production of Syncrude Canada’s offline on its sands
facility is impacting the market.
On Monday, WTI for September delivery increased by 1.62 percent and
settled at 70.13 dollars a barrel on the New York Mercantile Exchange. Brent
crude for October delivery increased by 1.03 percent and steeled at 75.55
dollars per barrel on ICE Futures Europe.
Syncrude Canada, one of the world’s largest producers of synthetic crude
oil from oil sands and the largest single source producer in Canada, has
announced that due to a power outage, the production at its oil sands
facility near Fort McMurray, Alberta was offline at least through July.
Syncrude Canada’s nameplate capacity stands for roughly 10 percent of the
Canadian crude oil supply. Its flow to Cushing, the U.S. state of Oklahoma,
has been reduced, which caused extreme low levels in the energy hub
inventories.
Cushing is a major trading hub for crude oil and a famous price settlement
point for WTI on the New York Mercantile Exchange.
Since beginning of the year, Cushing crude oil inventories have declined
by 50 percent.
On Wednesday, the U.S. Energy Information Administration reported a
surprise build of 3.8 million barrels in commercial crude oil inventories.
The buildup was mainly due to 9.6 million barrels of lower exports for the
week ending July 27, compared with the previous weekly report levels. The
crude oil imports maintained the same levels during the last two weeks.
U.S. net imports of crude oil is a very important value for the oil price
movements. U.S. net imports increased by 1.35 million barrels per day during
that week.
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Anas Alhajji, an energy economist based in Dallas, Texas, told Xinhua that
“Unlike the past, U.S. weekly crude oil inventories have become extremely
sensitive to U.S. net imports, making short term oil prices more volatile.”
EIA also reported on Wednesday that U.S. oil production declined to 10.9
million barrels per day during the week ending July 27, dropping from its
record high level of 11 million barrels per day.
Furthermore, oil prices were dragged down by the increasing output of the
Organization of the Petroleum Exporting Countries (OPEC) and Russia. OPEC and
Russia reported an increase in their output by 300,000 and 150,000 barrels
per day in July, respectively.
Alhajji said “The July production numbers show a large increase in OPEC
production close to 300,000 barrels per day, but exports increased only
slightly, preventing prices from declining further.” “While the increase in
OPEC production raises questions about the size of the remaining production
capacity, people should remember that most of the decline in Venezuelan and
Iranian production is already priced in.”
On Friday, the Houston-based Baker Hughes reported that the number of
active drilling rigs in the United States decreased by four to 1,048.
Analysts attributed the decline in drilling rigs to the larger price
differential between WTI Midland and WTI Cushing due to pipeline bottlenecks.
While media sources refer to WTI Cushing as U.S. oil prices, however,
producers in the Permian region in West Texas generally receive prices on oil
closer to the WTI crude priced at Midland, Texas. WTI Midland and WTI Cushing
usually trade close to par, but there were several times over the past two
years the spread has blown out, sometimes to up to 20 dollars a barrel.
Despite the decline in rig counts, the downward trend in oil prices
continued on Friday. The WTI lost 0.47 U.S. dollar to settle at 68.49 dollars
a barrel on the New York Mercantile Exchange, while Brent erased 0.24 dollar
to close at 73.21 dollars a barrel on the London ICE Futures Exchange. The
differential was 4.72 dollars at the end of the week.
The price differential between WTI and Brent narrowed down mainly due to
the oversupply worries after OPEC and Russia increased their output together
by almost 500,000 barrels per day in July.
The higher differentials between the two major benchmarks are, the more
arbitrage opportunities for traders to pursue. As a result, more U.S. crude
oil would be shipped to Asian market.
On Friday, U.S. dollar Index reached its highest levels within the last 52
weeks, which was another factor that pressured the oil prices during the
recent weeks.
Moreover, the trade disputes between the United States and China have kept
dragging down the oil prices. At the same time, the extent of U.S. sanctions
on Iranian crude oil exports will also be in the radar of the oil market.
According to analysts, the world is going through a cycle that
geopolitics, rather than supply and demand, is dominating the oil market.
BSS/AFP/HR/1350