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Crude Oil & Futures Trading | Trading Strategies & Guidance , Archive » Weekly Fundamentals – Crude Prone to be Oversupplied Despite Decline in Rig Count
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Weekly Fundamentals – Crude Prone to be Oversupplied Despite Decline in Rig Count

Posted July 4th, 2015 by DeenaLarnach and filed in General News

Crude oil prices fell to the lowest level in 3 months as US inventory recorded the first increase since April. Indeed, the decline in US crude inventories and the drop in the number of rigs since April have only resulted in mild reduction in crude production. This, together with OPEC’s commitment to not to cut production, would lead to oversupply this year. US’s total crude oil and petroleum products stocks soared +10.289 mmb to 1257.75 mmb in the week ended June 26. Crude stockpile rose for the first time since April, up +2.39 mmbm to 465.38 mmb. Inventory rose +3.87 mmb in PADD III and +0.62 mmb in PADD II, only offset partly by the draws in PADD I, IV and V. Cushing stock added +0.12 mmb to 56.37 mmb. Utilization rate added +1% to 95%. Gasoline inventory slid -1.76 mmb to 216.74 mmb as demand gained +0.79% to 9.73M bpd. Production rose +1.13% to 10.05M bpd while imports dropped -15.18% to 0.76M bpd. Distillate inventory added +0.39 mmb to 135.82 mmb, despite an +8.2% addition on demand to 3.90M bpd. Production increased +0.91% to 5.02M bpd while imports climbed +35.16% to 0.17M bpd during the week.

Since the end of April, US crude inventories have dropped faster than the same previous in previous years. The number of oil rigs, rising +12 units to 640 in the week ended July 2, has been on the fall since December 2014. However, US crude production has hardly dropped with domestic production staying record level of around 9.6M bpd. It is believed that the increases in well productivity through high-grading and well optimization would support US oil production for longer than expected. Producers now focus on more productive and profitable assets in a producer’s portfolio. This results in raising rig efficiency. They also retain the best crews and equipment to carry out its program, resulting in more consistent well results on average.

OPEC decided to leave output quotas unchanged in June. Yet, members have continued to produce exceeding quotas. A Bloomberg survey shows that the cartel’s production soared +0.74M bpd to 32.13M bpd in June. Output in Iraq increased +0.57M bpd to a record of 4.39M bpd whilst that of Saudi increased grew +0.15M bpd to 10.45M bpd during the month.

Nymex natural gas price rose +2.06% to 2.83 last week. The DOE/EIA reported that natural gas storage rose +69 bcf to 2 577 bcf in the week ended June 26. Stocks were +662 bcf higher than the same period last year and +29 bcf above the 5-year average of 2 548 bcf. Separately, Baker Hughes reported that the number of gas rigs decreased -9 units to 219 in the week ended July 2. In terms of drilling types, directional rigs slid -1 unit to 97, horizontal rigs rose +3 units to 657 and vertical rigs added +1 unit to 108 units. The total number of rigs added +3 units to 862 during the week.

Gold price fell for a second consecutive week and continued to hover around the lower end of the recent range. Despite heightened uncertainty in Greece’s bailout, the safe haven appeal of gold has remained modest. We remain bearish over gold’s outlook amidst expectations of Fed funds rate hike.

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Weekly Fundamentals – Crude Prone to be Oversupplied Despite Decline in Rig Count

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