Crude rallied hard into the close on Friday, perhaps over worry of some geopolitical blow-up over the weekend, but - with no blow-up forthcoming - it's resumed its slide, off 1.4% to $96.04 per barrel - right around the lowest since late January.
"The world has changed," says energy market analyst Daniel Dicker, noting conflicts in Russia/Ukraine, Iraq, and Syria, along with destabilization in Libya and Egypt - had they happened a few years back - would have sent prices soaring. What's different today, he says, is the exit from trading by the large investment banks. "This has taken an enormous amount of speculative steam out of the oil trade."
“Despite armed conflict in Libya, Iraq and Ukraine, the oil market today looks better supplied than expected, with an oil glut even reported in the Atlantic basin," says the International Energy Agency in its monthly report.
Alongside the bearish supply outlook, the IEA cut its global demand forecast for this year by 180K barrels per day to 1M. Demand is expected to rise to 1.3M barrels per day next year.
WTI crude is down 0.9% to $97.19, its lowest price since February. USO -0.6% premarket
The U.S. became the world’s largest natural gas producer four years ago, and now it is the world's top producer of crude oil, surpassing all other countries with output exceeding 11M bbl/day in Q1, according to a new report issued today by Bank of America.
Partly as a result of the shale boom, West Texas futures are at a ~$7/bbl discount to their Brent European counterpart, but it hasn’t made the expected impact on pump prices: “Typically such a large energy supply growth should bring prices lower, but in fact we’re not seeing that because the whole geopolitical situation outside the U.S. is dreadful," says BofA’s head of commodities research.
Drivers on the road for the Fourth of July weekend are facing the highest gasoline prices since 2008, despite the fact that U.S. oil production is its highest since 1986 and gasoline is well supplied across the country.
A larger-than-expected boost in crude oil supplies - up 1.7M barrels last week vs. expectations of just 480K - isn't putting a dent in prices which march a bit higher, the July WTI contract now up 0.7% at $103.40 per barrel.
Gasoline (UGA +0.4%) stockpiles, however, showed a sizable drop of 1.8M barrels vs. expectations for a gain of 280K. Distillates (UHN) fell 200K barrels vs. expectations for a 750K gain.
A flood of new oil from Texas to the Great Plains has swamped refineries, driving down pump prices 10% since March while global oil prices have hovered at ~$107/bbl; it suggests the world crude market is having waning influence on U.S. gasoline, which instead is beginning to track lower-priced domestic oil.
As cheaper oil translates to cheaper gasoline, the likes of Exxon (XOM) and Conoco (COP) will have a tougher time convincing U.S. lawmakers that ending export restrictions would benefit the country, says RBN Energy's Sandy Fielden, since "the most obvious thing that’s going to happen [given more exports] is that crude prices will go up and so will gasoline."
Lifting strict export limits would halt the decline in U.S. crude prices while costing motorists as much as $10B/year in higher fuel prices, according to Barclays.
A six-month deal to curtail Iran's nuclear ambitions is enough to send oil futures sliding 0.85% in Monday's early electronic trading. The easing of geopolitical tensions is usually a good excuse to pare bullish bets on crude.
Although the deal doesn't officially ease restrictions on crude oil sales, it does represent progress and some believe the agreement may be a precursor to the eventual resumption of exports.
"We can ... expect some price weakness as the market adjusts to the future prospect that Iranian exports will resume,” one Societe Generale strategist tells Bloomberg.
Iran and the P5+1 world powers have struck a six-month interim agreement in which the Persian nation will limit its nuclear program in exchange for an easing of international sanctions that will provide the country with $6-7B of foreign exchange.
However, "the key oil, banking, and financial sanctions architecture, remains in place," the White House said in a fact sheet.
"The EU crude oil ban will remain in effect and Iran will be held to approximately 1M bpd in sales, resulting in continuing lost sales worth an additional $4B per month," the sheet said.
Iran will eliminate uranium enriched to 20%, halt the installation of advanced centrifuges, refrain from commissioning its Arak heavy water reactor - from which plutonium can be made - and remove its stockpile of the fissile material, which is thought to be almost enough to make one nuclear bomb.
The sides now plan to spend the next six months working on a permanent deal.
The P5+1 and Iran have expressed satisfaction with the deal, but Israeli ministers have already rushed to the airwaves to denounce it.
Sensitive commodity prices have rolled over in afternoon trade with Lockhart's December taper talk as good of an excuse for the move as any.
Off 2.1% to $93.14 per barrel, WTI crude (USO -1.9%) hits its lowest close since right around Memorial Day. As heating season gears up in the northeast, heating oil (UHN +0.5%) at $2.86 per gallon is about a dime cheaper than this time last year.
Gold is -1.2% to $1,265 per ounce, and now off about 10% since Labor Day. GLD -1.3%.
Easier monetary policy from the ECB is doing little for the commodity sector as it's being more than offset by the big Q3 GDP number in the U.S. (never mind the number will undergo a number or revisions, and we're already nearly halfway through Q4).
Gold is off 1% to $1,303 and WTI crude oil continues to provide its own easier policy, slumping 0.7% to $94.15. In the Philadelphia area at least, drivers are about ready to see a "2 handle" at the pump (UGA) for the first time in a while.
The API late yesterday reported a 3M barrel build in domestic supplies, a number the EIA is expected to confirm in its own report at 10:30 ET.
WTI crude (USO) is off 1.9% to $96.48, the lowest price since late June. Brent crude (BNO) isn't off nearly as much and the spread between the two has widened to a 6-month high of about $12 per barrel.
Behind the stock build and lower U.S. prices could be refinery maintenance shutdowns. Fewer runs mean lower demand for crude, but also mean less product - gasoline and distillate supplies are both expected to print lower in the EIA report.
More pain at the pump is coming for U.S. consumers, as AAA says average gasoline prices could pop another $0.10-$0.15/gallon after Friday's 3.2-cent surge, the biggest one-day rise in five months. The recent spike in gasoline futures prices is linked to reports this week of production hitches at several U.S. refineries. Though inventories are high, they've been dropping steadily. UGA, the gasoline ETF, +15% this month.
The national average retail price of regular gasoline rose 0.9 cent to $3.655 a gallon in the week ended Monday, according to the EIA. Prices are 8.3 cents above year-earlier levels, the biggest year-on-year premium since February 18.
Refiners are taking a hit on an after-the-fact downgrade by Macquarie, but surely they will like the latest EIA report showing a bigger-than-expected gain in oil (USO) inventories, and a far larger-than-expected decline in gasoline (UGA) stocks. A refinery-heavy ETF, PXE -1%.
WTI crude (USO -1.3%) slips back below $90/barrel following the unexpected surge in inventories. Gasoline (UGA -0.9%) stockpiles fell as well, but by less than expectations. Perhaps some relief at the pump is on the way?