Oil market to see bargain hunting
Oil futures edged higher Wednesday after posting a roughly two-week low a day earlier, though pared much of their earlier gains after U.S. government data show domestic crude supplies fell a third straight week, but by a lot less than the market expected. The Market Watch in the article Oil prices end higher as U.S. crude supplies post a modest, but third straight weekly decline writes that the smaller-than-expected oil inventory decline “implies that there is weaker demand,” particularly on the heels of a hefty 12.8 million-barrel drop a week earlier, James Hatzigiannis, senior commodities associate at Long Leaf Trading Group, told MarketWatch.
Still, following the hefty declines in oil prices Tuesday, he said the market could see some “bargain hunting” that may outweigh pressure from the numbers in the supply report. August West Texas Intermediate crude was up 32 cents, or 0.6%, at $56.57 a barrel on the New York Mercantile Exchange. It was trading closer to $57 before the supply data. Regular trading on the exchange will be shut for the Independence Day holiday on Thursday. Meanwhile, international benchmark September Brent was up 48 cents, or 0.8%, at $62.88 a barrel on ICE Futures Europe. With the U.S. on holiday, oil trading on the exchange will close early, at 1:30 p.m. Eastern time, on Thursday.
The Energy Information Administration on Wednesday reported that U.S. crude supplies declined by 1.1 million barrels for the week ended June 28. Analysts polled by S&P Global Platts expected a fall of 3.7 million barrels in crude stocks, on average. The American Petroleum Institute on Tuesday reported a 5 million-barrel decline.
A solid rebound in imports helped to limit the draw to crude inventories, with refining activity continuing to “tick higher as we push into peak summer driving season,” said Matt Smith, director of commodity research at ClipperData. “Refinery runs have ticked up to 17.3 million barrels per day, the highest since the first week of the year, but have been reined in by a drop on the East Coast due to the [Philadelphia Energy Solutions] refinery.” The refinery is expected to shut down permanently at the end of this month.
The EIA data also showed that gasoline inventories were down 1.6 million barrels, while distillate stockpiles edged up by 1.4 million barrels last week. The S&P Global Platts survey had shown expectations for supply declines of 2.4 million barrels for gasoline and 1.4 million barrels for distillates.
Meanwhile, global economic worries have led to choppy trading in oil markets after futures prices gained modestly to start the week when Venezuela’s oil minister Manuel Fernandez said the Organization of the Petroleum Exporting Countries will extend its production-cut agreement by nine months through March 2020.
“Notwithstanding OPEC’s agreement, medium-term fundamentals are not strong,” said Martijn Rats, analyst with Morgan Stanley. “The slowdown in oil demand growth that emerged earlier this year has yet to turn around, with early indicators for May still showing almost no growth. At the same time, non-OPEC is set to grow [by more than] 2 million barrels per day in 2020, the third consecutive year. OPEC continues to balance the market, but at the expense of considerable market share.”
Venezuela and Iran have absorbed most of this difference, but with production and exports from both at very low levels already, the burden increasingly falls on Saudi Arabia and other OPEC members, he said.
“History is very consistent on the eventual outcome: when OPEC loses market share over a sustained period, oil prices rarely go up,” Rats added. The OPEC decision came as officials there keep close tabs on the risk to demand from global trade tiffs and as tensions percolate between Iran and the West, which could put the region’s oil shipping at risk.
Iran’s president warned European partners in its faltering nuclear deal on Wednesday that Tehran will increase its enrichment of uranium to “any amount that we want” beginning on Sunday, putting pressure on them to offer a way around intense U.S. sanctions targeting the country (Vestnik Kavkaza Iran can enrich uranium to any amount it wants)