Oil Prices See Sawing WIth No Direction

Crude oil dipped on Wednesday ahead of the weekly EIA inventory. WTI is back below the $45 price level losing 48 cents in the Asian session to trade at 44.75 while Brent oil gave up 28 cents to 47.82. The spread remains tight at just above $3.

While it’s been great for most American drivers on the road, the energy industry has been slammed by the crash in oil prices. Crude oil prices have fallen from over $100 a barrel in June 2014 to just $45 today. Chesapeake’s shares have plunged 71% over the past year.

In the same time horizon, U.S. companies have cut more than 86,000 jobs directly attributable to falling oil prices, according to outplacement firm Challenger, Gray & Christmas. Energy companies Schlumberger (SLB), Baker Hughes (BHI) and Halliburton (HAL) are among the companies to layoff the most workers this year.

Crude oil futures fell in early Asian trade on Wednesday after U.S. inventories showed a weekly buildup that far exceeded analyst expectations. The American Petroleum Institute (API) said late on Tuesday that U.S. crude oil stockpiles rose by 4.6 million barrels to 457.8 million barrels in the week to Sept. 25. Analysts polled by Reuters had expected an increase of only 102,000 barrels.

Wednesday’s session may be more volatile due to the close of September and third-quarter trading, according to some analysts. U.S. crude is heading for a 9-percent decline this month as the slump in commodities continues amid deepening concerns over China’s slowdown in economic growth. Brent crude is on track to round out September with a nearly 12-percent drop. Prices are unlikely to move substantially higher in the near term because demand growth is easing and likely to continue slowing into 2016, an oil analyst at consultancy Energy Aspects, told Reuters Global Oil Forum.

“We see demand growth easing from 1.5 million bpd (barrels per day) to 1 million bpd next year.”

He expects supplies to swing into a year-on-year decline, but prices “need to be low for at least the next six months – so in the $45-$55 range – to ensure a proper rebalancing.”

Prices are see-sawing between positive and negative territory throughout the day. “We think the prices of key commodities, such as oil and copper, are close to finding a floor, but sluggish demand growth and battles among producers for market share will keep prices under pressure for some time to come,” Barclays bank said in a market commentary. Analysts said the bearishness in equities was spilling over into the oil market, with resources firms leading a selloff in Asian stock markets Tuesday.

 Demand has been hit hard by a slowdown in China, the world´s top energy consuming nation, while other Asian countries have also seen their economic growth shaved.

Heavy-grade base oil prices will fall more steeply than light-grade prices as a recent supply tightness eases, according to a short-term base oil price forecast published in Argus Base Oils Outlook. Demand for heavy-grade base oils in many key markets like China will also fall as blenders switch to using lighter grade base oils during the winter months to produce more engine oil lubricants better suited to the colder weather.  

Expectations of price pressure on heavy-grade base oils follow the surge in prices of the product in the US market in recent months. These have coincided with softening Asia-Pacific prices amid rising surplus supplies in the region from producers in Taiwan and South Korea. The premium of US prices over Asia-Pacific Group II prices surged in September to more than $240/t, its widest level since early 2013. The widening price spread, combined with growing availability of Asia-Pacific supplies, has started to attract increasing interest in moving shipments to the US market. Even with pressure from rising supplies and a seasonal slowdown in demand, the drop in heavy-grade prices will be limited, leaving values at still firm levels relative to light-grade supplies.