US-Crude Down At 3-month Low, But World Bank Ups 2016 Price Forecast Anyway - Sort Of

by Ship & Bunker News Team
Thursday July 28, 2016

Wednesday saw a repeat of what is rapidly becoming a familiar theme: news of "surprise" builds in crude and gasoline inventories negatively impacting prices, in this case, Brent crude futures trading down some 3 percent and on course for the first monthly loss since January.

West Texas Intermediary settled 2.3 percent at $41.92 per barrel, having earlier fallen to a three-month low of $41.68.

Triggering the declines was a report from the U.S. Energy Information Administration (EIA) that shows growing oil inventories during a time when they should be depleting, specifically: U.S. commercial stored crude rising by 1.7 million barrels to a total of 521.1 million barrels in the week through July 22, compared to analysts previously expecting a draw of 2.3 million barrels.

Although a 40,000 barrel increase was widely expected, gasoline stocks rose by 452,000 barrels.

EIA data also revealed utilization rates falling 0.8 percent and refinery crude runs declining by 277,000 barrels per day last week, which gave Matt Smith, analyst at Clipperdata, cause to observe that "A drop in refinery runs at the peak of summer driving season indicate refiners are dialing back amid faltering profit margins."

The current market woes haven't prevented The World Bank from raising its crude oil forecast this year to $43 per barrel compared to $41 per barrel in its April assessment, which at face value seems like good news but is still a 15 percent decline from 2015.

The Bank noted that global demand is strong "albeit slowing", and downside risks to the forecast include "higher-than-expected output and further weakening in growth (of emerging market and developing economies)"; it added that "Supply disruptions among key producers could lead to higher prices."

But with regard to the seemingly endless cycle this summer of price and market predictions being made and then proven wrong in short order, Tariq Zahir, crude trader and portfolio manager at Tyche Capital Advisors, bluntly stated that, "The bottom line is the street has gotten it wrong as far as the oil markets achieving supply-demand balance this year.

"We will likely break through the $40 levels in days and weeks to come."

Earlier this week, Bart Melek, head of commodities strategy at TD Securities, told media that "Technicals will seek a level around $40.38, then we'll see," adding that if $40 is broken, the next level will be just above $36.