Oil prices drop as US output rises, crude demand falls in China

oil prices
Oil prices fell in trading on Friday after JP Morgan cut its crude price forecast, dropping its 2018 WTI forecast by $3 to $62.20/barrel and customs data from China showed lower crude imports. BP photo.

Oil prices fell in trading on Friday after JP Morgan cut its crude price forecast, dropping its 2018 WTI forecast by $3 to $62.20/barrel and customs data from China showed lower crude imports. BP photo.

Oil prices down, but market still tight: US investment bank Jefferies

Oil prices fell by under one per cent on Friday after JP Morgan released a report cutting its crude price forecast and data from China showed lower crude imports in May.

By 1:44 p.m., EDT, benchmark Brent crude was down 57 cents to $76.75/barrel and US WTI fell 13 cents to $65.82/barrel.  US crude is set to fall 0.2 per cent this week and Brent is on track to drop 0.6 per cent.

The Canadian Crude Index slipped $1.02 to $42.61.

“It’s all about the JP Morgan report,” Bob Yawger, director of energy futures at Mizuho told Reuters.

According to traders, JP Morgan cut its 2018 crude forecast for West Texas Intermediate by $3 to $62.20/barrel.

Earlier in the session, crude prices fell after customs data from China showed that in May, China’s crude imports were lower than the record high hit in April.  During May, a number of state-operated refineries underwent scheduled maintenance.

Last month, China imported 9.2 million barrels per day (b/d), down from 9.6 million b/d in April.

Rising US crude output also dampened oil prices on Friday.  According to the US Energy Information Administration, last week, US production rose to a record high 10.8 million b/d.

Baker Hughes reported on Friday that the US rig count rose by 1 to 862.  This is 121 more rigs operational than there were at this time last year.  In Canada, the rig count rose by 13 to 69, five fewer than one year ago.

The growth in US production had increased the discount between Brent and US WTI to over $11/barrel, the highest since 2015.

Even though oil prices were down on Friday, Brent is still 15 per cent higher than it was at the beginning of the year.

According to US investment bank Jefferies, the crude market remains tight and spare capacity to decline to 2 per cent of demand in the last six months of 2018.  This would be the lowest level since 1984.

In Venezuela, the state-owned oil company PDVSA is struggling to clear up a backlog of about 24 million barrels of crude waiting to be shipped to customers.  An economic and social crisis has left the country in chaos.

US sanctions imposed against Iran are expected to also cut the world’s supply of crude.  On Friday, Iran criticized a US request asking Saudi Arabia to increase its production to compensate for the reduced Iranian crude exports.  Tehran predicted OPEC would not comply with the request.

OPEC’s supply cut agreement has significantly cut the world’s crude glut back and participants are gathering in Vienna in late June to discuss easing back on output reductions.

Until then, many analysts say trading will be volatile.

“I think it is going to be very choppy,” Tariq Zahir, managing member of Tyche Capital Advisors told Reuters.

 

 

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