Oil price drops below $US50
Brent crude has fallen back below the benchmark as US drilling increases.
Brent, the international oil benchmark, fell below $US50 a barrel for the first time in a week as US drilling data showed another uptick, reinforcing views that the recent rally may restrain the rebalancing in oil markets.
Oil prices have surged nearly 90 per cent since dropping to 10-year lows in February, thanks to unplanned production outages world-wide and falling output in the US
However, some market participants say the rally could encourage producers to ramp up production, keeping well-supplied markets awash in surplus.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in July traded at $US48.41 a barrel at 0205 GMT, down $US0.66 in the Globex electronic session. August Brent crude on London’s ICE Futures exchange fell $US0.58 to $US49.96 a barrel.
On Friday, Baker Hughes Inc. said the number of rigs drilling for oil in the US rose by three in the week ended June 10, the second straight weekly increase.
Some analysts say although the latest uptick doesn’t indicate a material change in US production, it does suggest the $US50 a barrel price was “enough to prompt at least some shift at the margin of the market from taking rigs offline to standing them back up,” said Timothy Evans, a Citi Futures analyst.
However, he said that despite the increase, the number of US oil rigs is still 48 per cent lower than a year earlier. “We don’t see the increase off the bottom as doing much more than slightly slowing the rate of production decline.”
Still, other analysts say given the lack of positive catalysts in the market, even a marginal increase in shale production will prompt investors to take profits.
In addition, demand growth--particularly in China--could ease in the second half of the year as crude prices edge up, said Gao Jian, an energy analyst at the Shandong-based SCI International.
China has been a crucial driver of global crude demand as the government has granted more small private refiners, known as teapots, unprecedented access to buy foreign crude. In May, China crude imports jumped 39 per cent from a year earlier to 7.6 million barrels a day. However, it fell 4.3 per cent from the month before, mainly due to port congestion.
“As crude oil prices are rising, many of the teapots are trying to capture the still-low prices by maxing their import quotas now. This is why the port is so congested and why China crude imports might slow down later in the year,” he said.
For this week, market participants will be looking at a monthly report from the Organization of the Petroleum Exporting Countries, to be released later today. Some energy research firms expect that OPEC production dropped slightly in May due to outages in Nigeria and Libya. The International Energy Agency will also release its monthly outlook report on Tuesday.
Many will also be watching the Federal Open Market Committee meeting on Tuesday and Wednesday where the direction of US interest rates will be deliberated. Analysts say given the lackluster US jobs report last month, central bankers will likely keep interest rates where they are.
Nymex reformulated gasoline blendstock for July--the benchmark gasoline contract--fell 134 points to $US1.5462 a gallon, while July diesel traded at $US1.5058, 102 points lower.
ICE gasoil for July changed hands at $US446.50 a metric ton, down $US5.00 from Friday’s settlement.
Dow Jones newswires