MARKET WATCH: NYMEX, Brent drop slightly pending OPEC meeting

Oil prices held just above $49/bbl on the New York market on June 1 as traders and analysts awaited a June 2 meeting by the Organization of Petroleum Exporting Countries in Vienna and also release of the US crude oil and products report, which was delayed 1 day by the US Memorial Day holiday.

OPEC Sec. Gen. Abdalla Salem el-Badri said at a June 2 news conference that the OPEC meeting ended with a consensus to continue monitoring oil price levels in coming months. The cartel made no policy changes regarding production quota levels.

Khalid al-Falih, the new Saudi Arabia energy minister, told reporters in Vienna before the OPEC meeting started that he believes the market is rebalancing and prices will respond accordingly.

“We will not shock the market,” al-Falih said of OPEC, adding cartel members “want long-term stability” to encourage long-term investment.

Mohammed Barkindo of Nigeria was chosen to be OPEC’s secretary-general for 3 years starting in August. Barkindo served as acting head of OPEC in 2006 and previously ran Nigerian National Petroleum Corp.

During April, a meeting of OPEC and non-OPEC representatives in Doha failed to reach a consensus on quota levels. Upon arrival in Vienna this week, Qatar and Algeria representatives suggested they would support a collective production ceiling.

But Iranian officials maintain a production ceiling without individual quotas does not make sense. Iran has a long-term production goal of 4.6 million b/d. Iran produced 3.5 million b/d in April. Iran’s production is ramping up after the lifting of nuclear-related international sanctions.

EY’s Global Oil & Gas Transactions Leader Andy Brogan said, “Despite the continuing pressure from the more financially challenged members of the organization, no consensus is yet in place for a more activist stance. This may be attributable to the view that the low price is doing its job in pushing higher costs out of the market and should be left to complete this.”

Brogan added, “There may still be some skepticism that OPEC activity would actually move the market in the context of the other [supply-demand] issues.”

Ole Hansen, Saxo Bank head of commodity strategy, expects both US light, sweet crude oil and Brent crude prices will trade in the short term at $45-50/bbl.

“Depending on what kind of demand we will see across the Northern Hemisphere and especially in the US this summer, we should see oil continue its ascent as we approach yearend,” Hansen said. “This should leave both oils trading within a $50 to $55/bbl range by yearend.”

For 2017, Hansen sees prices continuing higher although at a slower pace than in 2016. He expects Brent will trade no higher than $65/bbl by Dec. 31, 2017.

Energy prices

The July crude oil contract on the New York Mercantile Exchange declined 9¢ on June 1, settling at $49.01/bbl. The August contract settled down 4¢ to $49.49/bbl.

The NYMEX natural gas contract for July delivery gained 9¢ to a rounded $2.38/MMbtu, marking the front-month’s highest settlement in nearly 5 months. The Henry Hub price was $2.26/MMbtu, up 17¢.

US gas future prices have jumped since the June contract expired with the May 26 settlement at $1.96/MMbtu. July’s gas contract has traded above $2/MMbtu since early March.

Summer gas prices then to be higher because of increased demand for gas-fired power to run air conditioners. Weather forecasts through mid-June call for warming days, especially in the Southeast and Texas.

Heating oil for July delivery edged up less than a penny to close June 1 at a rounded $1.50/gal. The price for reformulated gasoline stock for oxygenates blending for July also increased less than 1¢ to a rounded $1.62/gal.

The August Brent crude contract on London’s ICE dropped 17¢ to $49.72/bbl. The August contract lost 14¢ to $50.15/bbl. The June gas oil contract dropped $9.75 to $443.75/tonne.

OPEC’s basket of crudes price for June 1 was $44.68/bbl, down 47¢.

Contact Paula Dittrick at paulad@ogjonline.com.