Oil Prices Show Little Response to Lower Output Forecasts
September 09 2015 - 2:24PM
Dow Jones News
By Timothy Puko
Government forecasters Wednesday said U.S. oil production fell
to a nearly one-year low and that low crude prices are likely to
keep U.S. production declining through 2016.
The U.S. Energy Information Administration, in its monthly
short-term energy outlook, said that production fell by 140,000
barrels a day in August from the prior month. Output averaged 9.6
million barrels a day at its peak in April, the highest level since
1971, and has steadily declined since then to 9.1 million, the
lowest since September.
Prices showed little response to the data. Several recent big
swings came largely from speculation about how producers and
consumers will respond to prices that have fallen by more than half
since last year. Now trading is calm until more tangible proof
comes to show who was right, said Scott Shelton, broker at ICAP
PLC.
"The market wants to see the actual weekly data (on inventory)
instead of what the EIA forecasts," he said.
Light, sweet crude for October delivery recently traded down
$1.02, or 2.2%, to $44.92 a barrel on the New York Mercantile
Exchange. Brent, the global benchmark, lost $1.15, or 2.3%, to
$48.37 a barrel on ICE Futures Europe.
Traders have been fixated on China in recent months as worries
about an economic slowdown in the world's second-biggest economy
spilled over into crude and other commodities.
Markets got a boost early Wednesday after China's Ministry of
Finance said that it would roll out a "more forceful" fiscal policy
to stimulate economic growth, such as allocating more funds for
infrastructure projects and tax cuts for small businesses.
But after rising by more than 1%, prices spent most of the day
in retreat. Many are worried about an unrelenting supply from
around the globe. With the Organization of the Petroleum Exporting
Countries producing above its target of 30 million barrels a day,
investors say U.S. production needs to fall to make the market less
oversupplied.
The EIA has pushed back its expectations for a U.S. production
recovery by about six months, saying monthly output will keep
falling until it hits 8.6 million barrels a day until August 2016.
It lowered its output expectations for both 2015 and 2016 by about
1.5%, to 9.2 million barrels a day this year and 8.8 million
barrels a day next year.
The EIA estimates that cuts in production from the U.S. and many
other countries are going to be completely canceled out by
production increases from OPEC. It left global supply virtually
unchanged at 96.5 million barrels a day this year and 97.3 million
next year.
Saudi Arabia's crude oil output did slip in August by around
100,000 barrels a day to 10.26 million, an industry official said
Wednesday. That is still close to the record level of 10.3 million
barrels a day it hit in July. The amount of crude oil the country
sent to export and domestic markets also fell by around 80,000
barrels a day from July, according to the official.
"Any lasting price recovery would require signs that the
oversupply is being reduced," analysts at Commerzbank said in a
report.
The EIA also cut its price forecast for both U.S. and global
crude benchmarks through next year. The agency said U.S. crude
would average $53.57 a barrel in 2016, down 1.6% from its previous
forecast. The U.S. price averaged $93.17 a barrel in 2014.
Brent will average $58.57 a barrel in 2016, EIA said, trimming
1.4% from the previous forecast. In 2014 Brent averaged $98.89 a
barrel.
Investors are also bracing for the latest U.S. oil stockpile
numbers due later Wednesday from the American Petroleum Institute,
an industry group, and on Thursday from the U.S. Energy Department.
After last week's big builds in crude oil stocks, the consensus
this week is for a smaller increase, and more volatility should be
expected around the reports, analysts said.
Gasoline futures recently fell 1.5% to $1.3815 a gallon. Diesel
futures fell 2.2% to $1.5587 a gallon.
Georgi Kantchev and Summer Said contributed to this article
Write to Timothy Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
September 09, 2015 14:09 ET (18:09 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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