Market fundamentals and the technical constellation were rather bearish for oil futures at ICE and NYMEX at the beginning of this week. Even so, prices increased, testing their upward potential in the first half of the day already. Market participants took advantage of Friday's low price levels, covering their short-positions. Buying pressure thus predominated. The rise in oil futures was favored by the imminent change in the WTI front month contract which made traders liquidate their last remaining short-positions in the October WTI contract. In the course of the day, oil futures surpassed several resistances and so, the bearish cues provided by the technical constellation failed to materialize. Stop-loss buying orders were triggered instead. WTI took the lead on Monday, dragging the other contracts higher as well. However, the gains of product futures like Gasoil lagged behind the gains of the crude oil contracts significantly. Inspite of Monday's price increase, the lines of the Stochastic indicator continue diverging at ICE and NYMEX charts. The indicator can thus still be interpreted as bearish even though the selling signal isn't new. The lines of the 7- and the 21-period moving averages are also still diverging, giving bearish cues. Consequently, the technical constellation remains slightly bearish this morning, with the upward potential at ICE being limited by the 7-period MA. For the WTI contract, this marker serves as a support.
ICE Gasoil contract for October delivery settled at 464.25 USD on Monday, this is +1.00 USD above Friday's settlement. With some 48,800 deals the traded volume (front month) was below average.
Oil markets are currently torn between a long-term bullish perspective and a short-term bearish assessment. U.S. data show that oil production will keep falling in the long run. The number of active U.S. oil rigs dropped again last week while oil production declined from its April high of 9.61 mbpd to about 9.10 mbpd in August.
Oil production in the U.S. is seen falling further due to cutbacks in capital investment, hitting its low of 8.63 mbpd in August 2016 before recovering to some 9.09 mbpd by the end of the year.
In the past months the low price level has forced other countries as well to cut back investments in the oil industry. Nigeria is one of the biggest losers of the U.S. shale oil boom as the U.S. was one of the key buyers of Nigerian crude. Nigerian production has thus dropped lately, hitting a low of 1.9 mbpd in August and an average production of 2.0 mbpd in the year 2014, as EIA figures show. In an effort to increase its production, the state-owned Nigerian National Oil Petroleum Corporation (NNPC), in a Joint Venture with Chevron Nigeria (CNL), wants to invest 1.2 billion dollars in the development of onshore and offshore oil production in the years to come.
But in the short term excessive crude supply will keep weighing on global oil prices as crude stocks keep rising around the globe and stockholding might soon hit the capacity limits. The return of Iranian oil to the market which is expected by the end of the year will add to the market's oversupply even if U.S. production is on the decline. Seasonal refinery maintenance is another bearish factor that speaks against a price increase as refiner's demand for crude is dropping during this period.
After oil prices had hit a long-term low by the end of August they have been consolidating in the weeks after. The decline in U.S. production could put a floor under prices, Commerzbank analysts say. So do the majority of analysts in the oil market who expect the market to be balanced and oversupply to be reduced by the end of the year 2016. In the months before, a barrel of WTI could drop below 40 dollars.
Market participants today and tomorrow will closely watch the weekly reports on U.S. oil inventories as the monitoring company Genscape expects Cushing crude stocks to have dropped in the course of last week. This is rather unusual at this time of the year when refinery shutdowns due to maintenance reduce crude demand. Shrinking U.S. stocks are the main reason why oil prices at the global market are not falling any further, say J.P. Morgan analysts. Dwindling fears that U.S. stocks, and those in Cushing in particular, could hit their operative capacity limits as some analysts had warned still in summer, prevent more downside to oil.
Nationwide U.S. crude stocks are expected to have dropped by about 1.65 to 2.10 million barrels in the week ending Friday, 18th October. The API's figures are being released tonight after office hours and shown on our site tomorrow morning while DoE data will be published Wednesday at 4.30 p.m., as usual.
U.S.
Nymex above average : NYMEX crude contract for October delivery expires today at 8.30 p.m. The more actively traded month today is the new front month November. The traded volume of the October contract is therefore rather thin which makes the future volatile and susceptible to price fluctuations.
Houston (ex-wharf indications 22-9)
380cst $223.50
180cst $268
MGO $484
New Orleans (ex-wharf indications 22-9)
380cst $233.50
180cst $286
MGO $472.50
Singapore (delivered indications 22-9)
Brent is bouncing now after the recent losses +$0.40. Singapore paper is slow to react with -$1.50 for 180cst with -$0.50 for 380cst for Oct, and for Nov 180 cst -$1.30 and 380cst with -$0.50 with MGO contracts Oct losing with -$1.25 and in Nov with -$1.20. The cargo market is embracing the previous sell off yet to react to the bounce with 180cst -$10.05, 380cst with -$11.30 and MGO with -$1.05.
380cst $228
180cst $238
MGO $438
Fujairah (delivered indications 22-9)
380cst $233
180cst $252
MGO $519
ARA (Amsterdam - Rotterdam - Antwerp)
Indications for delivered bunkers:
380cst : $208
MGO 0.1%S: $420
