Light, sweet crude prices jumped more than $1/bbl to settle above $37/bbl on the New York market Dec. 15, the day before the US Federal Reserve appeared ready to announce the raising of interest rates for the first time since 2006.
Fed Chair Janet Yellen has scheduled a news conference for the afternoon of Dec. 16, following the end of a 2-day policy meeting. Fed officials also planned to issue a statement on economic projections.
In early trading on Dec. 16 on the New York market, oil prices fell again as investors awaited the Fed decision and release of the weekly US oil and product inventory. Analysts polled in advance by the Wall Street Journal said they expected inventories to fall by 1.4 million bbl.
But the Energy Information Administration estimated US commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased 4.8 million bbl for the week ended Dec. 11 compared with the previous week.
The latest Petroleum Status Report listed oil supplies at a total of 490.7 million bbl. Separately, the American Petroleum Institute said its own estimate showed oil supplies rose 2.3 million bbl for the week ended Dec. 11 (OGJ Online, Dec. 16, 2015).
Meanwhile, oil investors also watched US lawmakers discuss a complicated spending bill that includes an end to the export ban in exchange for 5-year extensions of tax credits for solar and wind energy.
The US ban on oil exports has been in place for 40 years. Analysts say world oil markets already are oversupplied.
The House of Representatives was scheduled to vote Dec. 16 on a measure that would extend funding through Dec. 22 to skirt a deadline that could shut down the federal government. That measure provides time for the House and Senate to vote later this week on a longer-term deal.
Brent-WTI spread likely to change
Martin O’Rourke, managing editor at Saxo Bank, noted that Brent and light, sweet oil prices settled Dec. 15 above multiyear lows experienced earlier in the week.
“But a US Congress vote to end the export ban on US oil is likely to add to the black gold’s woes,” O’Rourke said. “With crude oil inventories still way above the 5-year average, OPEC in particular will be watching its back on this export lift,” he said, referring to the Organization of Petroleum Exporting Countries.
O’Rourke said a lifting of the export ban on US oil for the first time since the 1970s could “usher in a new era in the battle for domination between the two global oil benchmarks,” of which Brent has traded at a premium to US light, sweet crude for some time.
Ole Hansen, Saxo Bank head of commodities strategy, said, “We could be days, not weeks away from the 40-year-old ban being lifted. As a result of this, we have seen a sharp deterioration in the premium that Brent crude has been commanding over WTI for several years. WTI crude is better quality than Brent so historically it has traded at a $1/bbl premium.”
He said a glut of US unconventional oil production has reversed the traditional equilibrium between the two benchmarks, triggering what he calls “a dislocation between US and global oil prices,” and he expects the price difference could change again, perhaps during the second half of 2016.
“Brent crude may just for now hold onto its role as the global benchmark but with the spread volatility coming down, many may decide to use WTI given its better liquidity and market depth,” Hansen said. “With OPEC oil typically tied to Brent, it means yet more oil will inevitably send the price further down,” Hansen said. “OPEC’s infamous supply-and-rule strategy may yet see it emerge the ultimate loser.”
Energy prices
The January crude oil contract on the New York Mercantile Exchange gained $1.04 to settle Dec. 15 at $37.35/bbl. The February contract was up 91¢ to settle at $38.51/bbl.
The NYMEX natural gas contract for January fell 7.2¢ to a rounded $1.82/MMbtu. The Henry Hub gas price was $1.65/MMbtu on Dec. 15, down 4¢.
Heating oil for January delivery climbed by nearly 2¢ to a rounded $1.15/gal. The price for reformulated gasoline stock for oxygenates blending for January was down by 1¢ to a rounded $1.24/gal.
The January ICE contract for Brent crude rose 53¢ to $38.45/bbl, and the February contract was up 57¢ to $38.73/bbl. The ICE gas oil contract for January was $345.75/tonne on Dec. 15, up $14.50.
The average price for OPEC’s basket of 12 benchmark crudes for Dec. 15 was $32.61/bbl, up 1¢.
Contact Paula Dittrick at [email protected].
