Oil Languishes in Bear Market Ignoring Middle East, Storm Risk

(Bloomberg)

Oil languished in a bear market as a persistent global supply glut meant prices were unmoved by risks ranging from tropical storms in the Gulf of Mexico to geopolitical tensions in the Middle East.

Front-month futures rose 0.2 percent in New York after closing Tuesday more than 20 percent below their February peak. Potential bullish factors barely lifted prices, including Tropical Storm Cindy halting service at a major oil terminal in the Gulf of Mexico, a shake-up in the Saudi royal family, and Iran’s Oil Minister Bijan Namdar Zanganeh saying on state radio that OPEC may decide to make deeper cuts.

Oil has returned to levels last seen before the Organization of Petroleum Exporting Countries and allies including Russia decided in November to cut production to drain a global glut. Relentless supply gains in the U.S. and renewed output from Libya are putting those efforts to boost prices in jeopardy. A joint OPEC, non-OPEC committee concluded on Tuesday that the market won’t rebalance until the second quarter of 2018, beyond the current expiry of the group’s output agreement.

“There is no bullish catalyst for oil to be seen at the moment and thus it is drifting lower,” said Bjarne Schieldrop, chief commodities analyst at SEB AB in Oslo. “It will be hard for Saudi and Russia to keep cutting production in the face of a strong rise in U.S. crude production and output in Libya.”

West Texas Intermediate for August delivery was at $43.65 a barrel on the New York Mercantile Exchange, up 14 cents, at 1:06 p.m. in London. Total volume traded was about 9 percent above the 100-day average. The July contract expired Tuesday after dropping 97 cents, or 2.2 percent, to $43.23, the lowest close since Sept. 16.

Brent for August settlement traded at $46.13 a barrel, up 11 cents, on the London-based ICE Futures Europe exchange. The contract lost 89 cents, or 1.9 percent, to $46.02 on Tuesday. The global benchmark crude traded at a premium of $2.47 to WTI.

U.S. crude inventories dropped by 2.72 million barrels last week, gasoline stocks rose 346,000 barrels and distillate gained 1.84 million barrels last week, according to people familiar with API data published Tuesday. Government data due Wednesday is forecast to show crude stockpiles dropped by 1.2 million barrels, according to estimates compiled by Bloomberg.

Oil-market news:

Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman replaced his cousin as heir to the throne, a shock announcement that consolidates the 31-year-old leader’s power in the world’s biggest oil exporter. He is expected to continue the kingdom’s current oil policies. Short-term floating storage economics are “close to breakeven, assuming a VLCC hiring cost of $16,500,” JBC Energy said in a research note. Mexico is expected to increase gasoline imports from the U.S. with Pemex’s biggest refinery out of service for at least two weeks. Oil companies risk wasting $2.3 trillion of investments should demand peak in the next decade as the world works toward its goal of limiting global warming, according to a report from Carbon Tracker.