Crude prices fall on sticky worries about oversupply
Crude-oil prices fell in early Asia trade Wednesday as investors weighed reports of a growing surplus from Saudi Arabia and supply disruptions in Canada and Africa.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in June
CLM6, -0.96% traded at $44.45 a barrel, down $0.21, or 0.5%, in the Globex electronic session. July Brent crude
LCON6, -0.79% on London’s ICE Futures exchange fell $0.19, or 0.4%, to $45.33 a barrel.
Overnight, prices rose as supply outages in Canada fed hope that the supply glut, which has depressed prices since the middle of 2014, is slowly abating. Wildfires in the oil-rich province of Alberta have resulted in a loss of about 1.6 million barrels a day, according to Energy Aspects.
Political strife in Libya and a series of attacks on Nigerian oil facilities are also hurting the countries’ crude exports.
But analysts say that these disruptions are likely to be short lived and the market remains oversupplied, underpinned by ballooning output by major producers such as Saudi Arabia and Iran, who are locked in a heated battle for market share.
On Tuesday, Amin Nasser, the chief executive of Saudi Arabian Oil Co., said the country plans to
increase crude production this year to satisfy rising demand.
“We’re seeing a global increase in demand,” said Nasser, adding that Saudi Aramco sees the current market as challenging but an “excellent opportunity for growth.”
Iran’s pledge to accelerate output and exports is also hindering global oil prices from rising further. In an interview with The Wall Street Journal, Mohsen Ghamsari, director of international affairs at the National Iranian Oil Co., said Iran was able to regain its lost crude exports within four months of international sanctions being lifted. The country plans to keep its oil exports at two million barrels a day, on average, this year.
Increased output from the Middle East comes at a time when U.S. crude inventory is already at an eight-decade high, despite signs of a steady production decline in recent months.
Banking on more energy company failures: An analyst survey by the Journal estimates a 400,000-barrel increase in U.S. crude stocks last week. Industry group American Petroleum Institute forecasts an expansion of 3.4 million barrels. Official data by the Energy Information Administration is scheduled to be released later Wednesday.
However, bullish analysts are banking on a near-term rally as more energy companies falter on dried-up cash flow.
“There were 18 bankruptcies in March and April in North America as creditors began to choke off lending to shale oil producers. The bankruptcies accounted for a combined $8.9 billion in debt,” said Gordon Kwan, head of regional oil-and-gas research at Nomura.
Adding to the positive sentiment is the EIA’s latest increased estimate for global demand. In its outlook report released Tuesday, the agency said it expects global consumption of petroleum and other liquid fuels to increase by 1.4 million barrels a day in 2016 and 1.5 million barrels a day in 2017, growth that is 300,000 barrels a day and 200,000 barrels a day higher, respectively, than forecast figures given last month.
“Even with those changes, however, it won’t take that much additional [OPEC] output to keep the market in a moderate surplus over the balance of the year,” said Tim Evans, a Citi Futures analyst.
“For now, a smaller surplus is still a surplus.”
MarketWatch
