MARKET WATCH: Light, sweet crude price hit 1-month low

Light, sweet crude oil for front-month delivery on the New York Mercantile Exchange declined to its lowest level in a month on Apr. 27 as concerns persisted about an oversupplied global market. But prices ticked upward early Apr. 28 on hopes that members of the Organization of Petroleum Exporting Countries and major non-OPEC oil-producing countries will continue a deal to collectively curtail output.

Light, sweet crude oil for front-month delivery on the New York Mercantile Exchange declined to its lowest level in a month on Apr. 27 as concerns persisted about an oversupplied global market. But prices ticked upward early Apr. 28 on hopes that members of the Organization of Petroleum Exporting Countries and major non-OPEC oil-producing countries will continue a deal to collectively curtail output.

Downward momentum this week caused in part by a report of rising gasoline inventories in the US was further backed by news that production from Libya’s Sharara and El Feel oil fields had restarted again. An armed group of protesters blocked pipelines earlier this month just a week after Sharara production had resumed from a March blockade.

Libya’s National Oil Corp. (NOC) said the reopening will restore 200,000 b/d of production from Sharara “with immediate effect” and allow El Feel to return to flowing 80,000 b/d. “This is intended to be a lasting solution,” said NOC Chairman Mustafa Sanalla. “We have agreed to the lifting of force majeure only on the condition that no extortion payments are made to the blockaders now or in the future.”

The US Energy Information Administration reported this week that US crude production rose 13,000 b/d last week to 9.265 million b/d. A key indicator of the country’s drilling and production resurgence, Baker Hughes Inc.’s latest rig count data will be released midday Apr. 28. As of the week ended Apr. 21, the count is up 453 units since the nadir of the drilling downturn on May 20-27, 2016 (OGJ Online, Apr. 21, 2017).

Separately, Oslo-based consulting service Rystad Energy estimates total US oil and condensate production will have increased to 9.3 million b/d from 8.9 million between November 2016 and May 2017.

Before the deal between OPEC and non-OPEC countries to collectively cut output by 1.8 million b/d during this year’s first 6 months, US oil production had declined by almost 700,000 b/d from a 2015 peak of 9.6 million b/d, Rystad notes. Over the past year, investment in the US shale industry has reached more than $100 billion. Drilling activity has grown 60% compared with 2016 levels, while completion activity is up 30%.

“The OPEC cuts and subsequent oil-price increase triggered renewed investment among US shale producers," said Espen Erlingsen, Rystad vice-president, analysis. "In fact, total investments in shale are expected to grow by approximately 50% this year. The spike in activity was first visible in increased rig counts, followed by higher completion activity. Now we are seeing growth in production again.”

Meanwhile, OPEC Sec.-Gen. Mohammad Barkindo reasserted on Apr. 27 at a conference in Paris that the market needs “to see the global stock overhang move closer to its 5-year average,” according to a Reuters report. Barkindo said Saudi Energy Minister Khalid al-Falih is leading an effort to get a consensus amongst countries participating in the deal ahead of the May 25 meeting in Vienna.

There the countries will determine whether or not to extend the agreement—or agree to some variation of it—for this year’s second half.

Energy prices

Both the June and July crude oil contracts on NYMEX dropped 65¢ on Apr. 27 to close at $48.97/bbl and $49.31/bbl, respectively.

The natural gas price for June declined 3.2¢ to a rounded $3.24/MMbtu. The Henry Hub cash gas price was $3.07/MMbtu, up 5¢.

Heating oil for May lost 2.95¢ to a rounded $1.51/gal. Reformulated gasoline stock for oxygenate blending for May decreased 4.03¢ to $1.55/gal.

The Brent crude contract for June on London’s ICE relinquished 38¢ to settle at $51.44/bbl. The July contract declined 59¢ to $51.82/bbl. The May gas oil contract fell $16 to $451.25/tonne.

OPEC’s basket of crudes closed Apr. 27 at $48.90/bbl, down 73¢.

Contact Matt Zborowski at matthewz@ogjonline.com.

More in General Interest