MARKET WATCH: Crude oil prices dropping, analysts expect volatility

Light, sweet crude oil for April declined moderately on the New York market to close at $48.90/bbl Mar. 13 while the Brent crude oil for May edged down, settling at $51.35/bbl. Analysts expect oil prices will remain volatile in coming days.

Commerzbank attributed dropping oil prices to rising US crude oil production and higher US rig counts while world crude oil supply still remains massive despite production cuts this year by the Organization of Petroleum Exporting Countries and some other major producers.

“There is little to suggest as yet that this market tightening has already begun,” Commerzbank said in a research note regarding world oil inventories.

Russian oil production data confirms delayed compliance from minor producers within Russia, said a Rystad Energy analyst, adding that Russia so far has reduced output by 40% of its promised 300,000 b/d production cut.

Russian oil output averaged 11.11 million b/d in February, unchanged from January. The Russian government vowed in 2016 that Russia will reach a 300,000 b/d oil production cut target by April. That cut is to be measured against October 2016 Russian production of 11.23 million b/d.

Rystad said the latest production numbers by operators shows the top three producers are on track to fulfill their production targets. Rosneft has contributed the biggest cut so far while most smaller Russian operators have not yet shown compliance with their individual targets.

“Our Russian production forecast for March 2017 is 11.03-11.05 million b/d, a cut of an additional 60,000 b/d from February 2017 output,” said Rystad analyst Veronika Akulinitseva. “As of today, we see an upside risk to Russian oil output due to the lack of evidence of production cuts from the smaller producers.”

Nadia Martin Wiggen, Rystad Energy vice-president of markets, said it’s still possible Russian producers will meet the full compliance target cut by April, but Rystad remains skeptical.

“The cut is voluntary by producers,” Wiggen added of Russia oil output. Another concern is the example that noncompliance by Russia sets for other non-OPEC production cutters.

Both the International Energy Agency and OPEC plan to release market outlook reports this week. Meanwhile, the US government releases its weekly inventory data on Mar. 15.

The US Federal Reserve started a 2-day policy committee meeting Mar. 14 that is likely to add uncertainty to markets.

Energy prices

The crude oil contract for April delivery on the New York Mercantile Exchange fell 9¢ on Mar. 13 to $48.40/bbl. The May contract declined 9¢ to $48.94/bbl.

The natural gas price for April increased 3¢ to a rounded $3.04/MMbtu. The Henry Hub cash gas price closed at $3.06/MMbtu, climbing 8¢.

Heating oil for April lost less than 1¢ to remain at a rounded $1.50/gal. Reformulated gasoline stock for oxygenate blending for April decreased nearly 2¢ to a rounded $1.58/gal.

The Brent crude contract for May on London’s ICE declined 2¢ to $51.35/bbl. The June contract lost 4¢ to $51.59/bbl.

The average price for OPEC’s basket of benchmark crudes on Mar. 13 was $49/bbl, down 81¢.

Contact Paula Dittrick at [email protected].