MARKET WATCH: NYMEX oil prices gain modestly pending inventory report

Crude oil prices for December delivery rose modestly on the New York market Oct. 27 pending the weekly government petroleum inventory report, which showed another gain in US oil supplies, and industry spokesmen discussed how low oil prices might slow tight-oil production.

Crude oil prices for December delivery rose modestly on the New York market Oct. 27 pending the weekly government petroleum inventory report, which showed another gain in US oil supplies, and industry spokesmen discussed how low oil prices might slow tight-oil production.

The Energy Information Administration estimated US commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased 2.1 million bbl for the week ended Oct. 24 compared with the previous week.

At 379.7 million bbl, US crude oil inventories are near the upper limit of the average range for this time of year, EIA said in its weekly petroleum status report. Separately, the American Petroleum Institute estimated crude oil supplies increased 3.2 million bbl last week.

Separately, a top spokesman for the Organization of Petroleum Exporting Countries believes falling oil prices could cut US tight-oil production in half.

In an Oct. 29 speech in London, OPEC Sec. Gen. Abdalla Salem el-Badri told the Oil & Money conference that 50% of US tight-oil production could prove unprofitable at current oil prices. Oil & Money conference is hosted by Energy Intelligence and the International New York Times.

OPEC estimates tight-oil projects need oil prices above $90/bbl to break even although that estimate is higher than other estimates. For instance, the International Energy Agency calculates that most tight-oil production is sustainable at $80/bbl.

Barclays Research Inc. analyst Miswin Mahesh of London acknowledged wide-ranging estimates regarding the amount by which US tight-oil production actually will decline at a given oil price.

Barclays issued an Oct. 28 research note suggesting a likely slowing in non-OPEC production growth (OGJ Online, Oct. 28, 2014).

“Market consensus is that the most likely swing producers in the absence of Saudi Arabia will be US tight-oil producers due to high costs,” Mahesh said, referring specifically to hydraulic fracturing.

Mahesh said tight-oil producers are expected to prove more sensitive to low oil prices than conventional oil producers.

“At one end of the scale, some analysts claim that prices are already low enough to prevent any increase at all in capital spending for 2015 and that, given the hefty decline rates in tight-oil production, a move to zero investment growth would slow US tight output growth next year to just 200,000 b/d compared with recent growth rates of close to 1 million b/d,” Mahesh said.

Gasoline inventories decrease

Meanwhile, total motor gasoline inventories decreased 1.2 million bbl for the week ended Oct. 24, which EIA described as being in the lower half of the average range. Both finished gasoline inventories and blending components inventories decreased last week.

Distillate fuel inventories decreased 5.3 million bbl, which was near the lower limit of the average range for this time of year. Propane-propylene inventories fell 1.3 million bbl but still remain well above the upper limit of the average range, EIA said in its weekly petroleum status report.

US refinery inputs averaged more than 15.1 million b/d during the week ended Oct. 24, which was 79,000 b/d less than the previous week’s average. Refineries operated at 86.6% of capacity last week.

Gasoline production decreased, averaging 9.1 million b/d. Distillate fuel production decreased last week, averaging 4.5 million b/d.

US crude oil imports averaged 7.1 million b/d, down 376,000 b/d from the previous week. Over the last 4 weeks, crude oil imports averaged 7.5 million b/d, 3.6% below the same 4-week period last year.

Total motor gasoline imports, including both finished gasoline and gasoline blending components, last week averaged 493,000 b/d while distillate fuel imports averaged 40,000 b/d.

Energy prices

The New York Mercantile Exchange December crude oil contract rose 42¢ on Oct. 28, closing at $81.42/bbl. The January 2015 contract also gained 42¢ to $81.12/bbl.

The natural gas contract for November climbed 8.8¢ to a rounded $3.65/MMbtu. The cash gas price at Henry Hub, La., was down 3¢, closing at $3.52/MMbtu.

Heating oil for November delivery was up a rounded 1.8¢ to a rounded $2.49/gal. Reformulated gasoline stock for oxygenate blending for November delivery gained 2.6¢ to a rounded $2.20/gal.

The December ICE contract for Brent crude oil rose 20¢ to $86.03/bbl. The January 2015 contract gained 26¢ to $86.49/bbl. The ICE gas oil contract for November gained $2, settling at $739.95/tonne.

The average price for OPEC’s basket of 12 benchmark crudes was $82.44/bbl on Oct. 28, up 7¢.

Contact Paula Dittrick at paulad@ogjonline.com.

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