New York — September ICE Brent crude futures settled $1.05 higher at $74.45/b Thursday, recovering some of the prior day’s deep decline, which was considered overdone by some analysts.
* Libya situation still fragile
* US taking hard line on Iran sanctions
* US/China trade worries wane
August NYMEX crude settled 5 cents lower at $70.33/b.
Brent had spent much of the afternoon lingering in unchanged territory, following a $5.46 drop Wednesday on concerns that an escalated US/China trade war would slow economic growth, and thus crude demand. Libya’s lifting of a force majeure was also bearish.
But some analysts saw the Wednesday selloff as excessive, considering a 12.63 million barrel draw in US crude inventories reported by the US Energy Information Administration, and the pending US sanctions against Iran that are expected to remove as much as 1 million b/d of crude off the market.
Plenty of uncertainty remains on both sides of the supply/demand equation.
Libya’s National Oil Corporation said Thursday it expects 50,000 b/d of crude to return within two days following the return of its El Feel field.
Late last week, NOC said production had fallen to 527,000 b/d from over 1 million b/d June 13.
But while Libyan production is climbing, “last month’s clashes between militias destroyed some oil infrastructure, which should limit the production recovery,” said UBS analysts Giovanni Stauvovo and Wayne Gordon in a report. “Also, the political and security situation in Libya remains fragile.”
“We already assumed disrupted Libyan volumes would, for the most part, return by September (although production would continue to face volatility from disruptions and power issues),” said S&P Global Platts Analytics head of supply and production Shin Kim.
Moreover, Suncor’s announcement that its 350,000 b/d Syncrude plant outage would last until early to mid-September, rather than end-July “offsets much of the higher Libyan barrels in August,” Kim said.
While Libyan crude production had been stable at just under 1 million b/d between September and May, production has been volatile since 2011, S&P Global Platts estimates show.
Also, an oil worker strike in the Norwegian sector of the North Sea could be extended Sunday if a pay deal is not reached, which could threaten production. So far, Shell has shut output at its Knarr field, which was producing just 23,000 b/d.
WAIVERS IN QUESTION
Recent news that the US was working with Saudi Arabia and other producers to secure crude supply ahead of renewed sanctions on Iran was keeping the crude bulls in check.
Russia and Saudi Arabia have boosted their output by a combined 500,000 b/d in June, the International Energy Agency reported Thursday.
Still, it remains to be seen if the US will allow any waivers to any buyers of Iranian crude. Some Asian importers are already looking for alternative crude supplies before the sanctions return November 4.
While US Secretary of State Mike Pompeo said Tuesday the US would consider waiver requests, US Treasury Secretary Steven Mnuchin said Thursday the US would enforce sanctions across the board.
“It is our intent to enforce sanctions on Iran-related-oil against everybody, including China,” Mnuchin said while testifying before the House Financial Services Committee.
On the demand front, concerns that additional US tariffs imposed on Chinese goods would cause an economic slowdown appeared to be easing Thursday, at least for the time being, with equities posting gains.
Recent economic indicators, such as US unemployment and GDP figures, have been supportive for refined products, and thus crude demand. Any dramatic fallout from the US/China trade tensions will likely not emerge soon, although the market will be closely watching how the situation plays out.
REFINED PRODUCTS CLIMB
NYMEX refined products also climbed Thursday. August RBOB climbed 1.03 cents to settle at $2.0717/gal, while August ULSD rose 2.23 cents to settle at $2.1231/gal.
US Gulf Coast spot gasoline prices were supported Thursday by local refinery work, namely a downed fluid catalytic cracker at the 225,500 b/d Total refinery at Port Arthur, Texas.
USGC refinery outages would be bullish for the New York-delivered NYMEX refined products contracts, as the Northeast is heavily dependent on USGC for supply.
US Atlantic Coast gasoline inventories at 66.47 million barrels the week ending July 6 were roughly 2% above the five-year average, according to the EIA.
Diesel is comparatively much tighter. USAC inventories at 31.19 million barrels were 25% below the five-year average. –Jeff Mower, [email protected]
–Edited by Gary Gentile, [email protected]
Source: S&P Global Platts
