Oil Oversupply Meets Rising Demand in Quietest Market Since 2013

(Bloomberg) -- The sleepiest oil market since 2013 will probably limp through the second half of the year as well.

Crude traded in a $5 range in June, the narrowest in 19 months. Volume was the lowest since December and open interest - - the number of futures contracts outstanding -- was the least since January. New York-traded futures, which have swirled around $60 a barrel for the past two months, will average about $59 in third quarter and $63 in the fourth, according to forecasts of 22 analysts compiled by Bloomberg.

Neither the potential return of Iranian crude to the market nor the long-anticipated decline in U.S. production is stirring a reaction. While gasoline demand has increased faster than projected, keeping the oil glut from growing, record production from OPEC’s biggest members and potential for a quick increase in U.S. shale output have capped a rebound in prices from the biggest drop since 2008.

“The market has found its equilibrium point and I don’t see any reason for us to break out of the range,” Michael Hiley, head of over-the-counter energy trading at New York-based LPS Partners Inc.,a futures brokerage, said by phone Wednesday. “It’s a tug of war between gasoline demand and crude supplies.”

The current conditions contrast with what the market saw a year ago. West Texas Intermediate crude fell almost 60 percent from $107.26 in June 2014 to $43.46 in March before rebounding about 40 percent into the current trading range. The U.S. benchmark grade lost 21 cents to $56.72 a barrel in electronic trading on the New York Mercantile Exchange at 11:49 a.m. Singapore time Friday.

Trading Volume

Volume topped 800,000 contracts a day in the first four months of this year. It fell to 636,128 last month, down 40 percent from February’s record high of 1.07 million, according to exchange data compiled by Bloomberg. Open interest fell to 1.612 million on June 22, the lowest since January.

The CBOE Crude Oil Volatility Index, which measures oil price fluctuations using options of the U.S. Oil Fund, closed at 29.01 on June 26, the lowest level since October. The U.S. fund, the biggest exchanged-traded fund that follows oil, holds front- month WTI futures.


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