Brent crude oil prices dipped about $2.50/bbl on the London market June 15 while light, sweet crude oil prices fell more than $1.80/bbl in New York. Analysts attributed the sharp price drops to traders’ concerns about rising oil production and more restrictive US trade measures.
Members of the Organization of Petroleum Exporting Countries on June 22 plan to discuss whether to ease production-cut targets that have been in effect for OPEC and some other major producers since Jan. 1, 2017.
Analysts expect OPEC and some other major producers will agree to raise production. The question is by how much and how soon. One analyst believes additional crude already is being transported.
“Between Saudi Arabia and Russia, [the first 500,000 b/d] is likely to be already in the pipeline and on the water when OPEC meets next week,” Olivier Jakob of energy consultancy Petromatrix said.
Other analysts said US President Donald Trump’s plans to proceed with tariffs on $50 billion worth of Chinese goods also pressured crude prices.
“If there’s any impact on the global economy from disruption of trade due to tariffs, that’s going to have an impact on oil consumption,” Andy Lebow, senior partner at Commodity Research Group, told the Wall Street Journal.
Suresh Sivanandam, senior manager, Asia refining, for Wood Mackenzie Ltd., said, “US crude exports to China have been in the range of 300,000 b/d in the first quarter, accounting for about slightly above 20% of total crude exports.”
Early indications had suggested US oil exports to China would be much higher in the second quarter, given the lower light, sweet crude-Brent differential, “which made the arbitrage to Asia look more attractive,” Sivanandam said, adding, “US crude exports to China fit well with the trend of declining Chinese domestic crude production and also a growing refining capacity in China.”
But tariffs present a risk. “While China could secure the crude from alternative sources such as West Africa, which has similar quality as the US crude, US would find it hard to find an alternative market that is as big as China,” Sivanandam said.
Energy prices
The July light, sweet crude contract on the New York Mercantile Exchange fell $1.83 to settle at $65.06/bbl on June 15. The August price dropped $1.84 to $64.85/bbl.
The NYMEX natural gas price for July gained nearly 6¢ to a rounded $3.02/MMbtu. The Henry Hub cash gas price increased 2¢ to $2.98/MMbtu on June 15.
Ultralow-sulfur diesel for July fell 7¢ to a rounded $2.09/gal. The NYMEX reformulated gasoline blendstock for July fell nearly 7¢ to a rounded $2.02/gal.
Brent crude oil for August dipped by $2.50 to $73.44/bbl on London’s International Commodity Exchange. The September contract dropped $2.54 to $73.08/bbl. The gas oil contract for July was $640.75/tonne, down $20.
OPEC’s basket of crudes averaged $72.79/bbl on June 15, down $1.01 from the previous day.
Contact Paula Dittrick at [email protected].
