MARKET WATCH: Oil prices drop on hints of rising world oil supply
Oil prices fell on the New York and London markets July 27, ending the week with falling prices after three consecutive days of crude price gains. Traders and analysts attributed the price drop to hints of increasing oil supply from Russia’s energy minister.
The week ended with uncertainty regarding whether the Organization of Petroleum Exporting Countries and Russia might increase production this year by more than previously expected.
Russia Energy Minister Alexander Novak said he “did not rule out…an increase in oil production in excess of 1 million b/d may be discussed,” by a group of producers, the Wall Street Journal reported.
OPEC and other producers, including Russia, set production-cut targets starting in 2017. Those targets remain effective, but the cartel in June said it would no longer comply by any more than 100% with the production-cut agreement.
After Novak’s comment, some analysts questioned Russia’s spare production capacity. Oil traders also remain concerned about US crude oil supply.
The New York oil futures price would be pressured down if US President Donald Trump were to authorize a release from the US Strategic Petroleum Reserve as he has suggested to lower gasoline prices.
Crude prices are volatile. Analysts cited pending unilateral US sanctions against Iranian oil exports, scheduled to start Nov. 4, which would support oil prices on concerns of less oil on world markets.
Meanwhile, analysts also are watching how the oil market reacts to trade tensions between the Trump administration and US trading partners.
Barclays Research analyst Michael Cohen of New York said, “US policymakers will likely play a more outsized role in guiding global oil prices than in recent memory, and we flag the possibility of significant upside price risks in the fourth quarter and downside risk in subsequent quarters from this development.”
Cohen’s comments came in a research note recapping a July 24 symposium that Barclays hosted in New York discussing US sanctions on Iran and the associated geopolitical ramifications.
Separately, the US drilling rig count reached 1,048 units working for the week ended July 27, up 2 rigs from a week ago, according to Baker Hughes data. The count is up 90 units from this time a year ago when the count stood at 958 (OGJ Online, July 27, 2018).
Energy prices
The light, sweet crude contract for September delivery on the New York Mercantile Exchange fell 92¢ to close at $68.69/bbl on July 27. The October contract declined 70¢ to settle at $67.73/bbl.
The NYMEX natural gas price for August gained 4¢ to $2.82/MMbtu. The Henry Hub cash gas price held unchanged at $2.78/MMbtu.
Ultralow-sulfur diesel for August fell 2¢ to a rounded $2.16/gal. The NYMEX reformulated gasoline blendstock for August edged down less than 1¢ to remain at $2.16/gal.
Brent crude oil for September declined 25¢ to $74.29/bbl on London’s International Commodity Exchange. The October contract fell 36¢ to settle at $74.76/bbl. The gas oil contract for August was $665.75/tonne, up $2.
The OPEC basket of crudes average price for July 27 was $73.69, up 7¢.
Contact Paula Dittrick at [email protected].
About the Author
Paula Dittrick
Senior Staff Writer
Paula Dittrick has covered oil and gas from Houston for more than 20 years. Starting in May 2007, she developed a health, safety, and environment beat for Oil & Gas Journal. Dittrick is familiar with the industry’s financial aspects. She also monitors issues associated with carbon sequestration and renewable energy.
Dittrick joined OGJ in February 2001. Previously, she worked for Dow Jones and United Press International. She began writing about oil and gas as UPI’s West Texas bureau chief during the 1980s. She earned a Bachelor’s of Science degree in journalism from the University of Nebraska in 1974.