Crude oil futures prices for April delivery on the New York market continued to fall Mar. 13 on what some analysts attribute to lingering storage concerns for oil supplies.
Analysts with Raymond James & Associates Inc. in a Mar. 16 research note said that although fears of running out of oil storage are unfounded, oil prices likely will remain “sloppy” over the coming months.
The RJA analysts noted that “regardless of the facts surrounding the US and global oil storage situation, we think there is still substantial risk for oil prices (and energy investors) over the next 2 months.”
They said, “There are still several potential negative catalysts for short-term oil prices including: 1) the psychological fear of running out of global oil storage capacity while already sitting at all-time highs in US oil inventories; 2) the risk of a sanction removal agreement with Iran that eventually brings an additional 500,000 b/d or more of oil into the market; and 3) the risk of a rising US dollar driving oil prices lower.
The analysts said that the “most noticeable example” of any threat to storage is being played out at the Cushing, Okla., storage hub, “where crude inventories have more than doubled over the past 6 months (from 20 million bbl to over 50 million bbl) and now sit near all-time highs.”
They said, “The market fear is that if this oil inventory build rate continued at the same pace (2 million+ bbl/week [year-to-date]), then Cushing storage capacity of about 70 million bbl will fill in the next 2 months.”
They said that in this case, “the reality is very different than perception.” Cushing is not an isolated market, they said. And, “for the right price, there are many storage outlets for the roughly 250 million bbl of expected global oil inventory builds that must find a home” in this year’s first half.
Therefore, they noted, “While global inventory data is delayed and often inaccurate, we see more than enough capacity through the combination of the entire [Organization for Economic Cooperation and Development] storage picture (crude plus refined products) and floating storage. While the OECD storage facts suggest the world has plenty of storage capacity this year…, we still question whether the perception or fear of record-high US inventories will be enough to send oil prices lower in the coming months.
Energy prices
The New York Mercantile Exchange April crude oil contract fell $2.21 on Mar. 13 to $44.84/bbl. The May contract fell $2.07 to settle at $47.06/bbl.
The natural gas contract for April was virtually unchanged at a rounded $2.73/MMbtu. The Henry Hub, La., gas price was $2.69/MMbtu, down 13¢.
Heating oil for April dropped 6.6¢ to a rounded $1.71/gal. Reformulated gasoline stock for oxygenate blending for April delivery was down 4.7¢ to a rounded $1.76/gal.
The April ICE contract for Brent crude oil lost $2.41, settling at $54.67/bbl, while the May contract lost $2.27 to $55.01/bbl. The ICE gas oil contract for April dropped $16 to $523.75/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes on Mar. 13 was $51.66/bbl, falling $1.50.
