Jul 2016 Financial News
Oil prices decline...glut eyed as markets await US government inventory report
Jul 20, 2016
Oil prices fell as much 1 per cent for a second day in a row yesterday as a rallying dollar and a global fuel glut offset forecasts for lower US crude stockpiles that typically would have been bullish for the market.
US crude stockpiles fell by 2.3 million barrels last week, trade group American Petroleum Institute (API) reported. That was just above a 2.1 million-barrels draw forecast in a Reuters poll. The US government’s Energy Information Administration (EIA) will issue inventory data on today.
If the EIA confirms a drawdown, it will be the ninth straight week that US crude stockpiles have fallen.
Even so, the market’s attention has been on an unexpected oversupply in fuels during the US peak summer driving season. As storage on land tightened in recent weeks, fuel prices weakened, prompting traders to store diesel on tankers at sea for later delivery.
Even if crude output tapers, some say the glut may continue to pressure prices.
“Unless crude imports fall totally out of bed, there’s ample oil in the tanks, and the headline numbers for crude won’t be as bearish as the total numbers,” said Kyle Cooper, oil markets consultant for New York-based broker ION Energy.
For distillate inventories including diesel, API reported a surprise draw of 484,000 barrels. It also said there was an unexpected gasoline build of 805,000 barrels.
“We expect fresh lows by tomorrow that should force out some recently acquired speculative longs that have been entering the market amidst the price consolidation of the past eight to nine sessions,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.
Brent crude settled down 30 cents, or 0.6 per cent, at US$46.66 barrel. It fell 1.4 per cent on Monday.
US West Texas Intermediate (WTI) crude fell 59 cents, or 1.3 per cent, to settle at US$44.65. WTI lost 1.6 per cent in the previous session.
Brent’s premium to WTI LCOc1-CLc2 reached its highest since the end of April, raising the export potential for US crude.
Both benchmarks were little changed after the API data.
Also weighing on oil was the US dollar’s rally to a four-month high, making greenback-denominated oil less affordable for holders of the euro and other currencies.
Earlier in the session, a protest over wages that shut the eastern Libyan oil terminal of Hariga and forced a suspension of 100,000 barrels per day of crude production helped the market limit some losses.
LPG oversupply
Meanwhile, Reuters reported yesterday that traders in the liquefied petroleum gas (LPG) market face a “career-ruining” glut that has led to millions of dollars in losses as Chinese buyers, far from coming to the rescue, are in a stand-off with oil companies to cancel deals.
LPG, a historically niche and dislocated market, has ballooned with the advent of US exports due to the shale boom.
The United States went from an importer to the largest single exporter of propane in just a few years, rivaling the Middle East Gulf producers.
“I can’t remember it being this bad. There was massive new production out of the US and people hoped the Chinese market might absorb it,” one LPG trader said.
“There was strong buying in the first four months of the year with low oil prices but that stopped and the market is now a few million tonnes long.”
A glut was expected, but its severity caught most by surprise and will likely serve as a warning to those trading liquefied natural gas, which is increasingly oversupplied.
LPG is the collective term for propane and butane, which T&T’s Phoenix Park Gas Processors exports to regional and international markets. The United States exports mostly propane used for heating and in the petrochemical industry to make propylene, a base for plastics manufacturing.
Traders have been left scrambling to mitigate losses as China has failed to be the driver of demand.
At least five companies—Vitol, Gunvor, Shell, BP and EDF Trading—cancelled July-loading cargoes out of the two major Texas LPG terminals, preferring to pay penalties of up to US$1 million per cargo.
Many LPG traders signed up for multi-year contracts but premiums to the US benchmark on a spot basis sunk by about US$40 a tonne this year, undercutting the term lifters.
The contracts were also signed when the US benchmark was around a $150 to US$200-per-tonne discount to the European benchmark and Saudi Arabia’s official selling price. But spreads shrunk dramatically in 2016, making US exports suddenly unappealing to Asia.
Chinese end-users are now cancelling or renegotiating their term contracts, taking advantage of product overhangs in the Middle East and a cheaper alternative feedstock, naphtha.
Asian demand slowed earlier this year on weak propylene margins, which led to run cuts and delayed new plant start-ups. After hitting a trough, the market is expected to rebalance by the year-end though supply will continue to outpace demand.
“Non-associated gas output means there will be a steady rise in natural gas liquids output despite the oil price doldrums. This trend will continue in the medium term,” Al Troner, head of Asia Pacific Energy Consulting in Houston, said.
Singapore-based SK Chemical Trading recently canceled contracts with Naftomar, Petredec and Shell after its end-user Zhejiang Shaoxing Sanyuan Petrochemical Co reneged on its orders. The companies did not respond to requests for comment.
One trader said the price rout was ruining careers and had “gunfight at the OK Corral-type implications”, referring to one of the most famous shootouts from the days of the American Wild West.
Source:
Trinidad Guardian
Wednesday July 20, 2016
http://www.guardian.co.tt/business/2016-07-20/oil-prices-decline
