Crude Prices Slip But Could Get Boost from Canada

by Ship & Bunker News Team
Monday June 25, 2018

Last week's announcement by the Organization of the Petroleum Exporting Countries (OPEC) that it would release an extra 1 million barrels per day (bpd) of crude onto the world market to compensate for member shortcomings had a dampening effect for traders on Monday.

But if events in Canada remain the focus of media over the next few days, there could be reason for them to support prices over the short term.

West Texas Intermediate on Monday settled down 50 cents to $68.08 per barrel, and Brent fell 68 cents to $74.87 per barrel, causing Phil Flynn, analyst at Price Futures Group, to remark, "The expectation that we'll see more crude out of OPEC and that supplies in the U.S. will be tight because of the Syncrude outage is going to keep the market on edge."

He was referring to the likelihood that an outage at Syncrude Canada's 360,000 bpd oil sands facility would last through July, which Goldman Sachs Group Inc. called the most dramatic event in the oil market last week, eclipsing the much-ballyhooed OPEC meeting in Vienna.

Goldman noted that if the Syncrude outage lasts for all of next month it could cause a further draw down in inventories at the U.S. hub at Cushing, Oklahoma, whose stockpiles have reportedly slumped in the past five weeks with the start of the summer driving season.

Goldman analyst Damien Courvalin wrote in a report, "With the global market pricing to pull crude out of the U.S., this loss of U.S. supplies will exacerbate the current global deficit, making the increase in OPEC production all the more required.

"And while Saudi is already ramping up exports, these will not be delivered until August with June stock draws already accelerating."

The bank left its summer forecast for Brent crude unchanged at $82.50 per barrel, but it says prices will sequentially decline to $75 by year-end.

As for OPEC's move to boost output, Goldman acknowledged that a Saturday meeting of the cartel provided more clarity about the decision, "with guidance for a full 1 million bpd ramp-up in 2H18; this is a larger increase than presented Friday, although the goal remains to stabilize inventories, not generate a surplus."

Last Friday, pundits theorized that OPEC would in fact only be able to increase production by about 700,000 bpd for the remainder of 2018 due to so many members not having the ability to fully turn on the taps; however, S&P Global was one of the few supporters of the announcement, claiming he hike would be enough for now but not enough for the fourth quarter.