Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
[Myra P. Saefong, MarketWatch]
Oil prices finished lower Tuesday, pulling back from three-year highs as traders awaited data due later this week on U.S. crude supplies and production.
February West Texas Intermediate crude CLG8, -0.20% fell 57 cents, or 0.9%, to settle at $63.73 a barrel On the New York Mercantile Exchange. Prices had settled Friday at $64.30, the highest close since early December 2014. Price had moved lower in electronic trading Monday, which was a U.S. holiday.
March Brent crude LCOH8, -0.38% the global benchmark, dropped $1.11, or 1.6%, to end at $69.15 a barrel on ICE Futures Europe, suffering the biggest single session dollar and percentage decline year to date. It closed Monday above $70 a barrel for the first time since December 2014, helped by a depreciating U.S. dollar.
Futures prices are “extended to the upside and a pullback (or at least some sideways consolidation) should not be surprising,” analysts at the Sevens Report said on Tuesday.
This week, the Energy Information Administration data on U.S. petroleum supplies and production will be in focus as traders look to see if the big dip in U.S. output revealed in the previous report was “a function of the turn in the calendar year, or a real downturn,” they said.
The EIA will release its data covering the week ended Jan. 12 on Thursday, a day later than usual because of Monday’s Martin Luther King Jr. holiday. Trade group the American Petroleum Institute will release its own figures late Wednesday.
Price Futures Group expects U.S. crude supplies to be down 3.5 million barrels. It also forecasts stockpile declines of 1.5 million for gasoline and 2 million for distillates.
The oil market is sending signals that it “won’t raise production even as supplies dwindle,” said Phil Flynn, senior market analyst at Price Futures Group. Commitment to output cuts led by the Organization of the Petroleum Exporting Countries is “stronger than ever.”
Even as oil prices see some “Tuesday profit-taking, the oil bears are having to throw in the towel,” Flynn said.
In a recent note, analysts at Morgan Stanley raised their Brent oil price forecast for the third quarter of this year to $75 from a previous forecast of $63. Backwardation in oil prices—a situation that sees prices for oil for delivery in the near future higher than those for later deliveries—is “likely to persist as inventories are set to remain tight putting upward pressure on prices,” they said.
Meanwhile, data from Baker Hughes BHGE, -2.47% released Friday showed that the number of active U.S. oil-drilling rigs rose for the week—the first increase in five weeks—indicating and uptick in drilling activity.
Separately, in a monthly report released Tuesday, the EIA forecast a monthly climb in U.S. oil shale production of 111,000 barrels a day in February, with the Permian Basin shale play expected to see the largest rise.
Among refined products Tuesday, February gasoline RBG8, +0.41% ended at $1.838 a gallon, down 0.6%, while February heating oil HOG8, -0.34% fell 1% to $2.063 a gallon.
February natural gas NGG18, +2.75% shed 2.2% to $3.129 per million British thermal units, after climbing 3.8% on Friday.
U.S. natural-gas production has “soared due to new pipeline capacity allowing producer to produce more,” said Flynn. To move gas, temperatures have to get even colder than it has been and “stay that way,” but “it looks like the market may get a warm up.”
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