Global oil prices are slowly tipping over and heading south after they hit 11-week lows late last week.
The weakness is being driven by fears about rising US oil rig use; a build up of unsold petrol, oil and other product stocks, especially in America; the slowing rate of fall in US domestic oil production, and growing stocks of crude in other parts of the world.
Growing crude supplies from Libya have added to the concerns that a glut of oil products will cut demand for crude by refiners in the third and fourth quarters.
On top of that the value of the US dollar is rising, and could continue to appreciate if the US Federal Reserve changes its interest stance this week.
And while US oil stocks are down to 519 million barrels, that is still very high for high summer in the US with recent drawn downs of oil and petrol stocks much weaker than expected.
The weekly Baker Hughes rig use report on Friday shocked the market as it showed the fourth week in a row rise in the number of rigs actively drilling for oil in the US added to the pressures on prices.
As a result, September West Texas Intermediate crude fell 56 cents, or 1.3%, to settle at $US44.19 a barrel in New York, the lowest level since May 9, according to FactSet data.
They fell 3.8% from the last Friday’s settlement of the August contract, which was the front-month contract at the time.
September Brent crude futures in London’s ICE Futures exchange lost 51 cents, or 1.1%, to $US45.69 a barrel, about 4% for the week.
Baker Hughes said the active US oil rig count rose 14 to 371 as of Friday. The increase was more than double the six-rig rise reported a week earlier and means the rise from the low in May (317) is now over 17%.
The total US rig count climbed by 15 to 462 (one more gas rig was in use).
It’s no wonder the likes of Schlumberger and Halliburton (the world’s two biggest oil services companies) confidently told investors last week that they thought the oil markets had turned and conditions and revenues will start improving.
Baker Hughes should echo those thoughts when it releases its quarterly figures this week.
“As inventories remain well above year-ago levels for crude and gasoline, and as demand fails to be as strong as [some] hope, there is the fear that the ongoing oil and gasoline glut is turning its attention to distillates, as refiners chase profit margins and adjust production to optimize diesel output,” Matt Smith, director of commodity research at ClipperData, told MarketWatch on Friday.
Recent figures from the US Energy Information Administration has show petrol stocks are rising at a time when they should be falling at the peak of the strongest demand for gas in America’s summer driving season for some years.
Despite high demand in the midst of this driving season, American petrol stocks grew by 900,000 barrels to 241 million barrels last week, and have risen for four weeks out of the last five.
Elsewhere in commodities, Friday’s surge in the value of the US dollar saw gold weaken as Comex gold futures settled lower, notching up losses for the second week in a row.
August gold eased $US7.60, or 0.6%, to settle at $US1,323.40 an ounce in New York, for a small weekly loss of about 0.3%. That was after the previous week’s 2.3% drop. Gold hit a four week low on Thursday before rebounding in late trading,and then tipped lower on Friday as the greenback had a solid day.
Comex September silver fell 12.6 cents, or 0.6%, to $1US9.689—for a weekly loss of around 2.4%. The metal’s midweek close at $US19.613 was the lowest settlement since the start of the month, according to FactSet data.
Comex September copper fell 2.3 cents, or 1%, to $US2.236 a pound, but with prices up roughly 0.1% for the week.
In London three month nickel futures on the London Metal Exchange slid 3.2% on Friday to close at $US10,420 a tonne, after rising 1.7% on Thursday and hit a 10-month high of $US10,900.
Nickel has been the top performer on the LME since June 1, up 23% as it has been boosted by concerns the Philippines will intensify a crackdown on mining companies that do not meet environmental standards, potentially slashing supplies from the world’s top exporter of nickel ore.
LME zinc finished down 0.4% at $US2245 a tonne, thanks to the higher dollar, but LME aluminium rose to end at $US1,611 a tonne, down from a one-year peak of $US1703 a tonne the previous Friday.
LME copper slipped by 1.1% to close at $US4920 a tonne on Friday, having hit its highest since July 15 at $US5,000 the previous week.
Lead and tin futures both ended the week lower thanks to the stronger greenback.
