Fear of Rise in Crude Stocks Pulls U.S. Oil Prices to a Near Three-Week Low
August 30 2016 - 10:33PM
Dow Jones News
By Jenny W. Hsu
U.S. oil prices slid to a near three-week low in early Asian
trade Wednesday on expectations that U.S. crude stocks expanded
last week, exacerbating the already oversupplied market.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in October traded at $46.20 a barrel at 0122 GMT, down
$0.15 in the Globex electronic session, the lowest intraday level
since Aug 12. October Brent crude on London's ICE Futures exchange
fell $0.02 to $48.35 a barrel.
Data by industry group American Petroleum Institute late Tuesday
showed U.S. crude stocks rose by 942,000 barrels in the week ended
Aug. 26. The group also forecast gasoline stocks to have fallen by
1.6 million barrels and a 3 million-barrel increase in distillate
inventories.
"Overall, we don't see the API data as enough of a surprise to
give prices a strong push," said Tim Evans, a Citi Futures analyst.
Official data by the U.S. Energy Information Administration will be
released later today.
Traders and analysts surveyed by The Wall Street Journal expect
the EIA to report that crude stockpiles rose by 1.2 million barrels
in the week ended Aug. 26, while supplies of gasoline also
fell.
For over two years, the global oil market has been roiled by a
tenacious surplus of crude. The glut was mainly a consequence of
major producers, in particular members of the Organization of the
Petroleum Exporting Countries, opting to ramp up their production
to protect their market shares, rather than scale back output to
boost prices.
While prices have risen from a 13-year low seen in February,
investors are still skittish about the market's nearterm growth,
given that most heavyweight OPEC producers remain stubborn about
their market-share first tactic.
Iran, for example, has repeatedly snubbed a proposal for a
collective production freeze, saying it would continue to pump
until its output is on par with that before the sanctions. Analysts
expect Iran to dole out the same stance when the 14-member OPEC
bloc meets later this month in Algeria. A Bloomberg report said
Iran plans to boost its output by 200,000 barrels a day by the end
of the year. In July, Iran's daily output was at 3.6 million.
Without Iran's commitment, Saudi Arabia is unlikely to agree to
a production freeze pact as the kingdom has said a such a pact must
be agreed to by all members.
The extended drop in oil prices signals "that market-watchers
are increasingly doubtful for OPEC to effectively persuade prices
higher in the coming month," said Barnabas Gan, an economist at
Singapore-based OCBC bank.
However, the prolonged low prices has taken a toll on many oil
revenue-dependent countries whose national coffers have suffered
from the sharp drop in investments in their oil patches.
On Tuesday, Iraq's Prime Minister Haider ah-Abadi said OPEC's
second-largest petroleum producing country is supportive of an
output cap. Until now, Iraq was seen as a potential impediment to a
deal because its production has soared and it desperately needs oil
revenue to fight a war against the Islamic State.
"This is a noted shift in tone to what the prime minister said
last week where he had indicated Iraq hadn't increased production
sufficiently," said Stuart Ive, a client manager at OM Financial in
Wellington.
Nymex reformulated gasoline blendstock for September--the
benchmark gasoline contract--fell 14 points to $1.4469 a gallon,
while September diesel traded at $1.4607, 104 points lower.
ICE gasoil for September changed hands at $426.50 a metric ton,
down $1.50 from Tuesday's settlement.
Ben Kesling and Summer Said contributed to this article.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
August 30, 2016 22:18 ET (02:18 GMT)
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