Author: Tom Whipple

It has been two weeks of mixed signals as to the course of oil prices. Last week prices fell around 1.5 percent, closing at $48.82 in New York on concerns that the OPEC/NOPEC collation was not following through on its pledge to cap production. Even though US stocks continue to fall, much of this is due to increasing exports of light oils and finished oil products and not to increased domestic demand. On Friday, the IEA said that although the oil markets were slowly balancing, it is not going quickly. OPEC and other friends of higher oil prices continue to release optimistic reports, but the consensus seems to be that oil prices will stay around their current levels for the rest of the year unless there is a major geopolitical upheaval.

Oil prices were strong last week with New York futures closing about $4 a barrel higher for the week at $49.71 and London at $52.52. Behind the move was another unexpectedly large decline in US stockpiles of 7.2 million barrels. This decline was brought about by a high level of US refinery consumption of almost 17.3 million b/d of crude the week before last. This was 620,000 b/d higher than in the comparable week in 2016. A reduction in Saudi shipments to the US was also seen as responsible for the unusually large decline in inventories.

The markets remain confused about the future of oil prices as analysts attempt to interpret alternating bullish and bearish signals. Last week prices rose on Tuesday and Wednesday while falling on Monday, Thursday, and Friday leaving US futures at $45.77 or about $1 below where they started the week.  With the US now exporting circa 1 million barrels of oil each day and imports up only about 300,000 b/d over last year, US stocks have been falling of late.  There has been some increase in US consumption, but a rapid rise in US oil product exports is clouding the picture as to whether the high levels of US refinery output are being consumed domestically or being shipped abroad.

Oil prices climbed steadily last week, ending up Friday about $5 a barrel higher in New York at $46.54 with London the usual $2.50 or so higher. Although market concerns about oversupply have not gone away, a 7.6-million-barrel decline in US crude stocks and better demand from Europe and China was enough to keep the markets climbing higher. Rising prices were kept in check, however, by the continuing increases in oil production in the US, Canada, Libya and Nigeria. There are also concerns that adherence to the OPEC production cut is slipping and many traders are losing confidence in OPEC’s ability to balance the markets with the current level of effort.

Last Monday, oil prices rose for the eighth consecutive session closing in New York at $47 a barrel and setting a record for the longest gaining streak in nearly eight years. This surge came on speculator concerns that increases in US shale oil production were starting to slow. The rest of the week was mostly downhill with NY futures closing at $44.23. The slide came among reports that OPEC was not interested in further price cuts; a resumption of the increase in the US oil-rig count of seven rigs, adding to the run of 23 weeks of steady gains before the count fell by one the week before last; US crude production and exports continuing to gain; and OPEC exports increasing by 220,000 b/d in June to 32.49 million b/d.