by Chris Becker
First a quick technical update, because in Asian trading, the WTI futures contract has fallen below critical support, a signal that City and then US traders will run with further short positions tonight:
What’s behind the move is two-fold. First, API reported last night an increase in crude oil inventories of 2.1 million barrels for the week and secondly, the Energy Information Association (EIA) lowered its WTI and Brent crude forecasts for this year and next. The EIA lowered WTI to $49.23 a barrel from $49.62 for this year and to $53.57 for 2016, with Brent’s 2015 forecast down to $54.07, down from the previous forecast of $54.40.
Its not all bad news though with an expected cut in U.S. crude-oil output just over 9 million barrels per day for the remainder of 2015, but down to 8.82 million barrels a day for 2016.
Some other highlights:
- North Sea Brent crude oil prices averaged $47/barrel in August, a $10/b decrease from July. This third consecutive monthly decrease in prices likely reflects concerns about lower economic growth in emerging markets, expectations of higher oil exports from Iran, and continuing growth in global inventories.
- U.S. regular gasoline monthly retail prices averaged $2.64/gallon (gal) in August, a decrease of 16 cents/gal from July and 85 cents/gal lower than in August 2014.
- EIA estimates total U.S. crude oil production declined by 140,000 barrels per day (b/d) in August compared with July production. Crude oil production is forecast to continue decreasing through mid-2016 before growth resumes late in 2016.
- Natural gas working inventories were 3,193 billion cubic feet (Bcf) on August 28. This level was 18% higher than a year ago and 4% higher than the previous five-year average (2010-14) for this week.
The supply/demand dynamic is still skewed to the former as OPEC refuses to make cuts, although according to the most recent Platts Survey, August was the first decline in production since February this year, to just over 31 million barrels per day. This is still above its own imposed ceiling of 30 million barrels and is not helping the beleagured member states shore up their growing fiscal imbalances.
For investors, there is opportunity here to be short oil contracts or short/avoid oil stocks in the short to medium term as the fundamentals still play out on the oil price complex. Woodside (WPL) and Oil Search (OSH) acquisitions shenanigans aside, short also be avoided for now.