Crude and Natural Gas Slump as Supply Concerns Ease

Edited by Vani Rao

Libya and Iraq improve their contribution to global crude oil production

Crude Oil

The WTI crude for August delivery fell 3.09%, or $3.22 a barrel, during the week ended Friday, July 11, 2014, as supply concerns from the crisis-ridden Libya and Iraq eased.

Source: Bloomberg
Source: Bloomberg

On Friday, July 11, 2014, US crude oil prices fell 2.03%, or $ 2.19, to end the week at $100.83 a barrel, the lowest level in the previous two months. Crude oil prices have slowly been declining over the past three weeks owing to easing of supply concerns from the civil war-ridden Iraq.

The Organization of the Petroleum Exporting Countries (OPEC) in its report stated that global oil demand will grow by next year as healthy economic growth across the globe accelerates. OPEC estimates oil demand to grow by 1.21 million barrels a day in 2015, as compared to 1.13 million barrels a day in the current year. However, OPEC also stated that its crude oil demand will fall by 300,000 barrels a day in 2015, which translates into a decline in market share to 32% from the current level of 35%.

On Wednesday, July 9, 2014, crude oil failed to rise even as the Federal Open Market Committee meeting review hinted at a withdrawal of stimulus package by the end of October 2014, signaling confidence in the US economy. Later during the day, the US Energy Information Administration (EIA) reported that crude oil inventories fell 2.4 million barrels to 383 million barrels for week ended July 12, 2014. However, crude inventories at Cushing, Oklahoma, rose 447,000 barrels to 20.9 million barrels, while the nationwide supply fell by 2.4 million barrels to 382.6 million barrels.

On Thursday, July 10, 2014, the US Department of Labor reported that first-time jobless claims for the week ended July 5, 2014, fell by 11,000 to 304,000 and below the consensus estimates of 315,000.

In the meanwhile, oil supplies from Libya resumed as the government regained control of oil terminals from rebels. In another major development, the country will be able to pump 340,000 barrels a day of crude from its Sharara oil field. The oil-rich African nation will be now able to supply over 500,000 barrels a day of crude, up from 300,000 barrels a day last month.

In the week ahead, all eyes will be on Federal Reserve Chair Janet Yellen’s speech on Wednesday on monetary policy economic data on retails sales and the University of Michigan’s Consumer Sentiment Index. China, the world’s second-largest oil consuming nation, is also scheduled to report its second-quarter gross domestic product, industrial production, and retail sales during the coming week.

On Friday, July 11, 2014, the European Standard Brent crude fell $2.01 a barrel to end the week at $106.66 a barrel. The ICE Futures Exchange-traded crude lost 3.60%, or $3.98 a barrel, during the week. The spread between the Brent and WTI crude narrowed to $5.83 a barrel.

Source: Bloomberg
Source: Bloomberg

The WTI and Brent crude were last trading at $100.41 and $106.61 a barrel, respectively, at the time of reporting.

Natural Gas

US natural gas prices for August delivery declined 5.9%, or 26 cents per million British Thermal Units (BTU), for the fourth week in a row, to settle at $4.146 per million BTU. This is mainly because natural gas stockpiles rose more than expected, easing supply concerns.

Source: Bloomberg
Source: Bloomberg

On Friday, July 11, 2014, natural gas prices edged higher by 0.63%, or 2.6 cents per BTU, trimming some of the weekly losses. The natural gas inventories have improved with 12 months of above-average gains. This in turn eases concerns of fuel storage during the harsh winter conditions.

On Thursday, the EIA reported a bearish natural gas inventory report. The agency reported that the US natural gas stockpiles for the week ended July 4, 2014, increased by 93 billion cubic feet to a total of 2.002 trillion cubic feet, marginally above the Bloomberg analysts forecast of 92 billion cubic feet.

The natural gas inventories have more than doubled in the last three months from an 11-year low of 0.822 trillion cubic feet in March 2014 to the present level. On an average, the natural gas inventory has gained over 100 billion cubic feet in each of the past eight weeks.

However, natural gas prices are expected to firm up as the US is set to face hot summer climate, thereby increasing the demand for gas by power units for cooling purposes.

US Natural Gas was last trading at $4.114 per million BTU at the time of reporting.

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