Market fundamentals as well as the technical constellation slightly weighed on oil futures Tuesday morning. Prices tested their downward potential at the beginning of European trading. However, the weaker US Dollar prevented sharper losses. Oil futures regained ground but gains were capped by the first short-term resistances. When oil prices broke above these levels, the rise accelerated, though, - the more so as the dollar continued to decline, making oil cheaper for investors outside the USA. Gasoline in particular was able to gain ground as the driving season is approaching. This sent the other contracts higher as well. Comments made by officials of the US shale oil industry and the API's bullish data on US oil inventories released Tuesday night pushed oil prices to fresh year-to-date highs. Oil futures thus ended the day clearly in the black.
ICE Gasoil contract for May delivery settled at 397.00 USD on Tuesday, this was 4.00 USD above Monday's settlement. With some 38,900 deals, the traded volume (front month) was below average.
OPEC members and other majour oil producers will presumably not meet to discuss an output freeze before OPEC's scheduled meeting in June, so the Russian energy minister Alexander Nowak on Tuesday. OPEC seems to focus once again on its original plan to eliminate oil producers that need a higher price from the global market. The current market development lets us believe that this policy is slowly taking effect, if much later than expected. U.S. oil production has been declining for weeks. The IEA expects therefore that U.S. crude output will hit its year low of 8.11 mbd in September which is about 850.000 bd short of the current production level. Still, OPEC members are divided about the future policy and some of them pursue their plans to increase output. Morgan Stanley analysts expect that OPEC production could thus increase by about 1.0 mbd before June which would significantly moderate the bullish effect of the decline in U.S. production. To achieve this goal it is crucial that production outages and the drop in exports from Nigeria, Iraq and Libya are eliminated and that Iran succeeds in increasing its output further. Unplanned losses in these countries have partially caused the latest price rally that started in February. If prices rise too fast experts believe that oil supply will not be reduced as fast as expected, e.g. as soon as U.S. output becomes profitable again. The most recent comments of the most important U.S. shale oil producers, such as Pioneer Natural Resources and Continental Resources let us believe that the price the U.S. oil industry needs to produce profitably is about 50 USD for a barrel and thus 5 to 10 USD higher than previously thought. Speculators thus feel that oil prices still have some more upside. The more so as the 50 USD mark does not mean that U.S. oil production will rise once this level is reached. It is necessary that this price is kept for a while until the additionnal barrels will hit the market. But analysts as Avtar Sandu with Phillip Futures warn that the global oil market is still oversupplied and that a sharp price decline could well be within reach. Oil prices however are extending their gains in electronic morning trading, the WTI still holding above 44 USD for a barrel on bullish comments of U.S. shale oil producers and the surprise draw in U.S. crude stocks according to the API's data.
U.S.
Nymex above average: Oil futures traded within a very tight range in Asian trading and Globex electronic trading this morning after having climbed to fresh 2016 highs. The traded volume at NYMEX is above average this morning. Market participants are waiting for the European financial and forex markets to open as well as for the economic indicators due today (see economic calendar). Moreover, they are eying the release of the DOE's report on US oil inventories at 4.30 p.m. and the results of the FOMC's meeting, which will be announced this evening after our office hours (at 8 p.m.).
Data on US oil inventories as per API: According to the API, US crude oil inventories decreased in the week ending April 22. Product stockpiles are to have declined, too. The data available so far for the past week in detail:
in million barrels crude oil distillates gasoline refinery utilization Cushing
Survey: 26.04. +1,7 -0,1 -1,2 +0,6%
API: 26.04. -1,1 -1,0 -0,4 +1,9
US refinery run rates are expected to have increased which is why commercial crude oil demand is seen higher. Nonetheless, analysts had expected moderate builds in nationwide US crude oil inventories. The draw in oil inventories reported by the API Tuesday night thus took market players by surprise, the more so as there was a sharp rise in Cushing crude oil stockpiles. These builds excluded, overall crude oil inventories even dropped by -3.0 million barrels. This is a clearly bullish factor. The draw in gasoline stockpiles reported by the API is less significant than expected but distillate inventories declined more sharply than anticipated. However, the data on oil products slip into the background against the backdrop of the changes in US crude oil inventories. The API's report was thus interpreted as clearly bullish.Market participants are now waiting for the DOE's official data on US petroleum stockpiles, due at 4.30 p.m.. This data contains figures on imports, product demand and US oil production. US oil output has lately hovered below the psychological mark of 9 mbpd. It is expected to continue declining.
Houston (ex-wharf indications 27-4)
380cst $176.50
180cst $294
MGO $403
New Orleans (ex-wharf indications 27-4)
380cst $196.50
180cst $238
MGO $405.50
Singapore (delivered indications 274)
Brent is gaining momentum +$1.99. Singapore paper is reflecting the same with +$12.75 for 180cst with +$11.75 for 380cst for May, and for June 180cst +$11.75 and 380cst with +$12.05 with MGO contracts May with +$2.10 and in June with +$2.07. The cargo market is following now with 180cst +$0.63, 380cst with +$1.52 and MGO with +$0.32.
380cst $205
180cst $211
MGO $388
Fujairah (delivered indications 27-4)
380cst $206
180cst $211
MGO $434
ARA (Amsterdam - Rotterdam - Antwerp)
Indications for delivered bunkers:
380cst : $199
MGO 0.1%S: $390
