MARKET WATCH: Crude oil prices snap losing streak on lower US inventory, Saudi rising production

March 16, 2017
Crude oil price rose Mar. 15 on markets in New York and London on reports of the first drop in US oil supplies in 10 weeks and on reports that Saudi Arabia’s February production was higher than its January production.

Crude oil price rose Mar. 15 on markets in New York and London on reports of the first drop in US oil supplies in 10 weeks and on reports that Saudi Arabia’s February production was higher than its January production.

“The Saudis are flexing their muscle and are saying to other OPEC producers that they need to keep in line,” said Sabine Schels, Bank of America Merrill Lynch commodity strategist (OGJ Online, Mar. 15, 2017).

The Organization of Petroleum Exporting Countries issued a Monthly Oil Market report in which OPEC said secondary sources estimated OPEC’s February crude oil production decreased 14,000 b/d from January to average 31.96 million b/d for February.

Crude oil output increased the most in Nigeria, while production in Saudi Arabia, Iraq, UAE, and Angola showed the largest declines, OPEC said. Saudi Arabia told OPEC its February production was 10.011 million b/d, up by 263,000 b/d compared with January.

Meanwhile, US commercial crude oil inventories, excluding the Strategic Petroleum Reserve, declined 200,000 bbl for the week ended Mar. 10 said the US Energy Information Administration’s weekly Petroleum Status Report. At 528.2 million bbl, US crude inventories are above the upper limit of the average range for this time of year (OGJ Online, Mar. 15, 2017).

EIA said US oil production topped 9.1 million b/d for the week of Mar. 10, up 21,000 b/d from the week of Mar. 3. Nearly all of the most recent production increase came from the Lower 48 with Alaska accounting for 1,000 b/d of the gain.

Separately, the US Federal Reserve announced a decision Mar. 15 to raise interest rates, likely to pull down the value of the dollar in comparison with other currencies. Oil is traded in dollars. A weakening dollar makes oil less expensive for buyers using other currencies.

The Fed said it was raising its short-term interest rate for the second time in 3 months. The central bank maintained its earlier forecast for two more rate hikes this year. The latest decision was to raise fed funds rate to a range of 0.75-1%.

“The simple message is the economy is doing well,” Fed Chair Janet Yellen said in a news conference after a 2-day policy meeting concluded.

In an accompanying statement, the Fed noted inflation was little changed and still running below its long-term target if energy and food prices were excluded. Higher oil prices are behind recent increases in inflation.

“That rise was largely driven by energy prices,” Yellen said. During questioning from reporters, she said it remains to be seen what economic policies might come from US President Donald J. Trump’s administration. “We haven’t tried to map out what our response would be to certain policies.”

The Fed’s projections for short-term interest rates, shows three hikes in 2017, three in 2018, and three in 2019. This is unchanged from the prior forecast in December.

Energy prices

The crude oil contract for April delivery on the New York Mercantile Exchange gained $1.14 on Mar. 15 to $48.86/bbl. The May contract rose $1.03 to $49.38/bbl.

The natural gas price for April climbed 4¢ to a rounded $2.98/MMbtu. The Henry Hub cash gas price closed at $3/MMbtu, down 4¢.

Heating oil for April gained 2¢ to a rounded $1.51/gal. Reformulated gasoline stock for oxygenate blending for April edged down less than a penny to remain at a rounded $1.58/gal.

The Brent crude contract for May on London’s ICE increased 89¢ to $51.81/bbl. The June contract rose by 86¢ to $51.97/bbl. The gas oil contract settled at $455/tonne on Mar. 15, up $7.

The average price for OPEC’s basket of benchmark crudes on Mar. 15 was $49.17/bbl, up 54¢.

Contact Paula Dittrick at [email protected].