MARKET WATCH: NYMEX oil price falls nearly $1/bbl before US-China meeting

Light, sweet crude oil prices settled nearly $1/bbl lower on June 28 in New York than the previous day while the Brent contract for August held unchanged at $66.55/bbl in London on June 28 pending a highly awaited discussion between US and China leaders.

Jul 1st, 2019

Light, sweet crude oil prices settled nearly $1/bbl lower on June 28 in New York than the previous day while the Brent contract for August held unchanged at $66.55/bbl in London on June 28 pending a highly awaited discussion between US and China leaders.

US President Donald Trump and China’s President Xi Jinping reached agreement to resume trade talks. The announcement came after they met on the G20 summit sidelines in Osaka, Japan.

Trump said he would allow US companies to continue selling to Chinese technology giant Huawei. He also confirmed after the Osaka meeting that his administration would not add tariffs on $300 billion worth of Chinese imports.

The Organization of Petroleum Exporting Countries has meetings scheduled for Vienna on July 1-2. OPEC and some non-OPEC members meet on July 2 to discuss whether to extend production-cut targets into this year’s second half to support oil prices.

Ann-Louise Hittle, vice-president, macro oils, at Wood Mackenzie Ltd., said, “Geopolitical risk means the supply outlook is tightening, offsetting the moderate weakening in oil demand growth thus far this year.”

Hittle said, “We expect OPEC+ will continue production restraint through the second half of 2019, rolling over the current agreement,” adding that worsening US-Iran tensions adds potential for oil price volatility “that could be tricky for OPEC members to manage.”

WoodMac expects world oil demand will increase 1 million b/d in 2019 with increased demand in the second half of the year after weak demand growth in the first half. Risks to oil demand include higher US tariffs on Chinese imports or others and weakening in gross domestic product.

“Our forecast assumes no further trade war escalation,” Hittle said. “On that basis, we expect a tightening in the supply and demand balance in the second half of 2019, which supports prices. Brent is forecast to average $68/bbl for 2019 as a whole and $69.50/bbl in the second half of 2019.”

She foresees strong OPEC compliance except for Iraq and Nigeria. In May, Saudi Arabia had cut its production by more than 800,000 b/d from its October 2018 reference level, more than required. Libya, exempt from production restraint, increased its production in May to about 1.1 million b/d.

“Year-on-year, OPEC crude oil production for 2019 is expected to decline by 1.8 million b/d, with more than half of that reflecting the impact of US oil sanctions on Iran and Venezuela. Venezuela’s production was already in decline, but US oil sanctions are biting, with the country seeing a further 500,000 b/d fall in output since the beginning of the year,” Hittle said.

In 2019, Iran’s production is expected to fall by 1 million b/d year-on-year as US oil sanctions cut into its oil exports, especially after waivers for consuming nations to import limited Iranian oil ended in early May.

WoodMac forecast that Venezuela and Iran’s crude oil production together in 2019 will fall 1.6 million b/d.

“At present, OPEC has capacity to boost output by about 3.8 million b/d within 9 months,” Hittle said. “Almost all of the 1.8 million b/d that could be brought to market within a month is held by Saudi Arabia, Kuwait, and the UAE. If a significant outage occurs, the ability of the global industry to meet oil demand will be at risk.”

Energy prices

Light, sweet crude oil on the New York Mercantile Exchange for August delivery fell 96¢ to $58.47/bbl on June 28 while the September contract declined 97¢ to $58.52/bbl.

NYMEX natural gas for August fell nearly 2¢ to a rounded $2.30/MMbtu.

Ultralow-sulfur diesel for July edged down less than 1¢ to remain at $1.95/gal. The NYMEX reformulated gasoline blendstock for July also decreased 1¢ to a rounded $1.94/gal.

Brent crude for August held unchanged at $66.55/bbl. The September price decreased 93¢ to settle at $64.74/bbl.

The gas oil contract for July rose $1 to $595/tonne on June 28. The average for OPEC’s basket of crudes was $65.60/bbl on June 28, down 1¢.

Contact Paula Dittrick at pdittrick@endeavorb2b.com.

More in Economics & Markets