New U.S. pipelines and a
revival in Libyan supply are increasing the likelihood that oil prices will
slump through year-end after climbing in the first six months.
Wall
Street analysts tracked by Bloomberg predict West Texas Intermediate oil, the
U.S. benchmark, will average $100 a barrel in the fourth quarter, down 5.1
percent from June 30, while Brent drops 4.8 percent to $107. Violence in Iraq
sent Brent to $115.71 in June, its highest level since September, on concern
supplies would be disrupted.
Brent
is poised to decline in part on increased output in Libya as key export
terminals were reopened. In the U.S., traders are focused on supplies at
Cushing, Oklahoma, the delivery point for the WTI futures contract. Tallgrass
Energy Partners LP plans to complete the conversion of the Pony Express
pipeline to carry crude to Cushing from Wyoming. Enbridge Inc.’s Flanagan South
will connect to the hub from Illinois.
“Cushing
is an island of scarcity in a sea of plenty,” Harry Tchilinguirian, the head of
commodity markets strategy at BNP Paribas SA in London, said by phone on July
2. “In the third quarter we’re looking at two new pipelines, the Flanagan and
Pony Express, that will supply Cushing. There will then be a new equilibrium.”
Prices Gained
WTI
rose 7.1 percent in the first six months of 2014 on the New York Mercantile
Exchange as Cushing supplies tumbled to a five-year low, with new lines
carrying oil to the Gulf Coast. The U.S. grade fell $4.21 to $102.29 during the
nine days ended July 9, the longest stretch of declines since 2009. It sank an
additional 2 percent to $100.83 Friday, the lowest close since May 12.
Brent,
the benchmark for more than half the world’s oil, gained 1.4 percent on the
London-based ICE Futures Europe exchange. The North Sea oil decreased 1.8
percent to $106.66 a barrel Friday, the lowest settlement since April 7.
Brent
was headed for a drop in the first half until the widening conflict in Iraq
raised concern of a supply disruption. Prices fell after an Islamic insurgents’
advance stopped short of southern Iraq, home to most of the country’s crude
output.
The
spread between the contracts narrowed to as little as $3.59 in April from
$14.95 on Jan. 13, before the opening of the southern leg of the TransCanada
Corp.’s Keystone XL. Stockpiles have slipped 50 percent since the pipeline
began moving barrels from Cushing to Texas on Jan. 22, Energy Information
Administration data show. The spread closed at $5.83 Friday.
“We’re
looking for a change in the balances with the opening of the Pony Express and
Flanagan South pipelines,” Francisco Blanch, head of commodities research at
Bank of America Corp. in New York, said by phone on July 7.
Supply Drop
Cushing
supplies began falling two years ago when the direction of the Seaway pipeline
was reversed to move oil away from the hub. Enbridge and Enterprise Products
Partners LP said July 3 that they completed a 512-mile (833-kilometer) loop
that’s expected to boost Seaway’s capacity to 850,000 barrels a day from
400,000.
The
additional supply coming out of Cushing is about half that of the new lines
going in. Pony Express will open with throughput of 230,000 barrels a day and
Flanagan South will be able to move 600,000, the lines’ owners said.
Tim
Evans, an energy analyst at Citi Futures Perspective in New York, said by phone
on July 2 that there were a lot of geopolitical issues affecting markets in the
first half, but that the biggest factor was the opening of the southern portion
of TransCanada’s Keystone XL pipeline because it resulted in a decline in
Cushing stocks.
U.S. Production
U.S.
crude output rose to 8.514 million barrels a day in the week ended July 4, the
most since October 1986, EIA figures show. Annual output is forecast to reach
9.28 million barrels a day in 2015, the highest since 1972. “If not for the
massive increase in U.S. production, we would be paying a significant premium
to what we’re seeing today,” Adam Wise, who helps run a $6 billion oil and gas
bond portfolio as a managing director at John Hancock in Boston, said July 2 by
phone.
Global
consumption is forecast to climb 1.2 percent to 91.62 million barrels a day
this year, the EIA says. “There will be a moderate rise in demand, but supply
will be enough to cover that,” Hans van Cleef, an energy economist at ABN Amro
Bank NV, said by phone from Amsterdam on July 4.
Crude
climbed in June after violence flared in Iraq, the second-biggest producer in
the Organization of Petroleum Exporting Countries. “Iraq has been the big
surprise,” Amrita Sen, chief oil economist for Energy Aspects Ltd. in London,
said by phone on July 2. “The second quarter was very strong.”
Libyan Supply
Iraq
concerns increased amid a drop in Libyan supply. Libya pumped 300,000 barrels a
day in June, down 73 percent from a year earlier, according to a Bloomberg
survey of oil companies, producers and analysts. Output has risen to 350,000
barrels a day, National Oil Corp. spokesman Mohamed Elharari said by phone
Thursday. Libya, holder of Africa’s biggest reserves, has 7.5 million barrels
of oil stored at the ports of Es Sider and Ras Lanuf, which were reopened this
month, Oil Ministry Measurement Director Ibrahim Al-Awami said by phone on July
7. “Risk premiums linked to Libya and Iraq in particular will continue to
dictate where Brent prices are,” Abhishek Deshpande, a crude markets analyst at
Natixis SA in London, said by e-mail on July 8.
Iran
is another possible source of increased crude as diplomats meeting in Vienna
seek a permanent accord over the country’s nuclear work. If an agreement is
reached, sanctions limiting Iranian exports could be eased.
Saudi Arabia has also
added to supply, boosting output by 230,000 barrels a day to 9.9 million, the
highest since September, when it pumped 10 million, the most in monthly data
going back to 1989. “The U.S. and Saudi Arabia have almost exclusively made up
for the declines in Libyan and Iraqi output,” Katherine Spector, a commodities
strategist at CIBC World Markets Inc. in New York, said July 2 by phone. “If
the other shoe were to drop, there’s nobody to make up for the loss.”
Source: http://www.moneynews.com/Economy/Oil-Price-US-Output/2014/07/11/id/582156/ Newsmax.com Friday, 11 Jul 2014 03:42 PMhttp://www.moneynews.com/Economy/Oil-Price-US-Output/2014/07/11/id/582156#ixzz37SoFl7Yd
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Comments
It’s important right now to contact Congress to push expanding
offshore access for U.S. drilling. If we
can add this to the current boom, we will help ourselves quite a bit.
Norb Leahy, Dunwoody GA Tea Party Leader
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