Brent Oil – WTI Spread Dangerously Tight

Crude oil prices remain below the $45 price level to trade at 44.87 as traders review the weekly bullish API inventory report released after markets closed on Tuesday.  The American Petroleum Institute released the weekly crude oil stocks report after trading on September 14, 2015. Last week, the US crude oil stockpile rose by 2.1 million barrels for the week ending September 4, 2015. Market surveys project that US oil stocks could rise by 1.75 MMbbls for the week ending September 11, 2015. The record stockpile from the US to the Middle East will also add to the glut.

The API data release is followed by the EIA’s weekly petroleum status report. The EIA will release its next report on September 15, 2015. The data showed that the US commercial crude oil inventory rose by 2.6 MMbbls to 458 MMbbls for the week ending September 4, 2015.

Bloomberg surveys estimate that crude oil stocks could rise by 1.75 MMbbls for the week ending September 11, 2015. Distillates stocks are also expected to rise by 0.25 MMbbls for the same period. In contrast, the gasoline stockpile is estimated to fall by 0.5 MMbbls for the week ending September 11, 2015. The consensus of rising crude oil stocks will add pressure to crude oil prices.

Refinery maintenance and the peak summer driving season are nearing an end. The massive fall in gasoline prices will also put pressure on crude oil prices. Gasoline prices fell by 5.11 % in yesterday’s trade.

Brent oil diverged from WTI in the Asian session giving up 30 cents to trade at 47.76 with the spread narrowing to under $3, signaling an alert to traders that the market is out of sync. OPEC released it Monthly Oil Market Report on September 14, 2015. The report highlighted that crude oil demand growth could slow down in 2016—led by China and Brazil’s economic slowdown. The demand for OPEC crude oil could average around at 30.31 million barrels per day in 2016. OPEC also projects that non-OPEC nations’ crude oil supplies could rise by 160,000 bpd in 2016. However, the IEA expects that crude oil production from non-OPEC nations could fall in 2016.

The Chinese market collapse, downgrading of Brazil’s credit rating, Russian recessionary concerns, and the South African economic slowdown will curb the demand for crude oil in the long term in the oversupplied crude oil market. In turn, this will add more pressure to the crude oil market. Societe Generale forecasts that WTI prices could average around $49.40 per barrel in 2016 despite the oversupply concerns. Likewise, the EIA estimates that US crude oil prices could average $49.23 per barrel in 2015 and $53.57 per barrel in 2016.

In other energy news, activist investor Carl Icahn increased his stake in the Houston based Liquefied Natural Gas producer, Cheniere Energy, Inc. Mr. Icahn’s hedge fund, Icahn Capital in a regulatory filing with the Securities and Exchange Commission on Monday, revealed that it has raised its stake to 9.59% from 8.2% in August. The filing further revealed that Mr. Icahn increased its shareholding from 19.4 million in August to 22.7 million currently. Mr. Icahn is said to have paid between $53.60 and $54.75 for the new shares bought. Mr. Icahn’s investment in Cheniere Energy comes at a time when crude oil prices have fallen significantly. Natural gas prices are closely linked to crude prices. Cheniere Energy has also fallen over 34% in the past one year. However, Mr. Icahn still remains bullish on the LNG producer.

Natural gas is trading at 2.732 down by 2 points but dead smack in its recent trading range. The low price of the commodity, lowers the value of the shares of major producers making them prime targets of big traders.