Crude oil prices edged higher in early Asia trade Tuesday on bargain hunting, but concerns about additional output from the Middle East are keeping prices under pressure.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in October (CLV6, +0.11%) traded at $47.12 a barrel, up $0.14 in the Globex electronic session. October Brent crude (LCOV6, +0.00%) on London’s ICE Futures exchange rose $0.09 to $49.35 a barrel.
Oil prices fell overnight as worries over the possibility of the U.S. raising interest rates as early as next month reverberated through an already jittery market. An increase in U.S. rates usually strengthens the dollar, the oil industry’s standard currency, making oil more expensive for traders using other currencies.
While oil prices have escaped a 13-year nadir seen in February, the general mood of the energy market remains bearish as the world is still inundated with surplus barrels. The pessimism has been exacerbated by the growing likelihood that major producers inside the Organization of the Petroleum Exporting Countries won’t reach an agreement to curb production.
The suggestion of a production freeze was first made in February. The condition was that OPEC would impose a production cap if all producers were on board. However, the deal flopped when Iran refused to comply, saying it would ramp up production until the output level is on par with the level before sanctions, around 4 million barrels a day.
With prices climbing around 50% since February, there is a growing cry within the cartel that market forces are already correcting prices, albeit slowly, and no intentional production curtailment is needed.
“The United Arab Emirates oil minister hinted that the oil market should achieve stability soon,” said ANZ Research. Such comments have been echoed by Saudi Arabia, the de facto leader and the biggest producer of the cartel.
Moreover, countries whose production was recently stunted by natural disasters or political upheaval would be reluctant to accept any production freeze, analysts say, referring to Nigeria and Libya.
Elsewhere, the recent ceasefire agreement between the Colombia government and the insurgent Revolutionary Armed Forces of Columbia, or FARC, may nudge the country’s oil production higher in the long run.
“While we wouldn’t expect any immediate change, both supply and demand may see stronger growth in the years ahead if the peace holds,” said Tim Evans, energy analyst at Citi Futures.
Colombia’s oil and other liquid production this year is expected to fall below the 1 million barrel-a-day level of 2015, according to OPEC’s projection.
In the near term, the market will be taking cues from weekly U.S. crude and gasoline inventories data to be released Wednesday. A survey by S&P Global Platts forecasts U.S. crude stocks rose by 600,000 barrels, while gasoline stocks will show a draw-down of 1.1 million barrels last week.
Prices will also likely be affected by possible heavy rain in the Gulf of Mexico as Tropical Depression Nine has moved into the area.
“Traders will be watching the increased storm activity for any disruption to oil facilities in the region,” said Stuart Ive, client manager at OM Financial.
Nymex reformulated gasoline blendstock for September (RBV6, -0.11%) — the benchmark gasoline contract — rose 43 points to $1.4712 a gallon, while September diesel traded at $1.4875, 13 points higher.
ICE gasoil for September changed hands at $432.50 a metric ton, up $1.75 from Monday’s settlement.
By: Jenny W. Hsu (MarketWatch).
Photo: Al-Manar.
Review: Emerging Market Formulations & Research Unit, FLAGSHIP RECORDS.
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