Market Watch- 19 Oct. 2016- Crude oil futures pivoted higher in early Asian trade Wednesday on prospects that U.S. crude inventories likely dipped last week, reinforcing views that global glut is ebbing, albeit at a slow pace.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in November CLX6, +0.91% traded at $50.76 a barrel, up $0.47, or nearly 1%, in the Globex electronic session. December Brent crude LCOZ6, +0.85% on London’s ICE Futures exchange rose $0.48 to $52.16 a barrel.
U.S. domestic crude inventories likely slipped by 3.8 million barrels in the week ended October 14, based on data by industry group, the American Petroleum Institute. The group also forecasts a decline of 2.3 million barrels in distillate stocks, but a 900,000-barrel rise in gasoline stocks.
Official data will be released by the Energy Information Administration later today.
“If U.S. crude did decline last week, low imports will once again be the reason why,” said Tim Evans, a Citi Futures analyst. “What we still won’t know, however, is whether imports are down because refiners have stopped buying in order to work off excess stocks, or whether there’s been some more important drop in global availability.
Crude also got a boost from a weaker dollar, which makes oil cheaper for buyers who deal in foreign currencies. The WSJ Dollar Index BUXX, +0.02% which tracks the dollar against a basket of other currencies, was down 0.10%.
Oil prices have been under pressure for over two years as supply has persistently outpaced demand. Though prices have gone up around 8% since the Organization of the Petroleum Exporting Countries reached an understanding late September to slash production by as much as 700,000 barrels a day, much of the market remains skeptical if the group will follow through with the pledge. Even if individual quotas are assigned to members countries, it remains to be seen if they will observe the new rule.
Also, as Iran, Libya, and Nigeria are exempt from the deal, some analysts say incremental increase in their productions could offset reduction by OPEC members, sending the group’s overall production on an uptrend instead of a downtrend.
Many oil investors and banks, including Goldman Sachs, have described the plan to slash production as “self-defeating” as higher prices may widen the market for U.S. shale drillers who would swoop in and essentially extend the global supply glut.
A survey of investment banks by The Wall Street Journal predicted Brent crude will average $56 a barrel next year.
“We remain skeptical over any significant rally in crude oil prices over the next six to 12 month horizon, as any print above $60 a barrel would be persuasive enough to lift U.S. shale oil production,” said Barnabas Gan, an economist at OCBC.
Nymex reformulated gasoline blendstock for November RBX6, -0.33% — the benchmark gasoline contract — fell 17 points to $1.5040 a gallon, while November diesel traded at $1.5825, 139 points higher.
ICE gasoil for November changed hands at $468.00 a metric ton, up $8.00 from Tuesday’s settlement.
