Oil Prices Down for the Week

West Texas Intermediate (WTI) crude oil for July delivery finished higher Friday, gaining 23 cents to settle at $52.51 per barrel. Compared to the June 7 close, the WTI is down 2.7 percent.

August Brent futures also rose, adding 70 cents to end the day at $62.01 per barrel. Week-on-week, Brent is down two percent.

Tom Seng, Assistant Professor of Energy Business at the University of Tulsa’s Collins College of Business, observed that crude oil entered its fourth week of a bearish trend this past week. He added that weakening demand and a surprise increase in inventory overshadowed the attack on two oil tankers in the Gulf of Oman near the Strait of Hormuz.

“Lower early week trading reflected ongoing concerns about the global economy and possibly lower demand for oil while a bearish inventory report only served to propel prices even lower Wednesday,” said Seng. “With the threat of tariffs on Mexican imports delayed, the market turned this week to the continuing lack of a trade agreement between the U.S. and China as a factor in a possible global economic slowdown along with actual weaker economic data coming out of China.”

Seng also noted that increasing U.S. oil inventories, coupled with tepid gasoline demand and record U.S. production, cast a “solid bearish slant” on market fundamentals. He said that Wednesday’s Weekly Petroleum Status Report from the U.S. Energy Information Administration (EIA) revealed:

• An unexpected second straight weekly increase in oil inventories that sent the daily settlement price to levels not seen since mid-January; the 2.2-million-barrel build was well below the American Petroleum Institute’s 4.9-million-barrel projection but higher than the Wall Street Journal’s 600,00-barrel forecast
• Total crude stocks at 485 million barrels – the highest level since July 2017 and eight percent above the five-year average for this time of year
• An increase in refinery utilization to 93.2 percent with an increase in gasoline production and a decrease in distillate output
• 52.9 million barrels of oil in storage, or approximately 70 percent of available capacity, at the Cushing, Okla., hub – a 2.1-million-barrel increase
• A nine-percent drop in U.S. crude imports compared to year-ago levels
• A decrease in oil production from 12.4 to 12.3 million barrels per day (bpd)

“Yesterday’s attacks on the two oil tankers in the Gulf of Oman spurred a rally which almost erased the losses from the prior session,” continued Seng, adding that oil prices nevertheless remain below week-ago levels.

Seng also pointed out that BP’s latest installment of its Annual Statistical Review of World Energy – released this week – reported that global energy grew 2.9 percent last year while oil demand and U.S. energy consumption rose by 1.5 percent and 3.5 percent, respectively. He added that the report indicated the U.S. experienced the largest year-on-year gain for oil and gas production of any country – ever. Moreover, he noted that U.S. stock market indicators stayed close to their recent levels on settlement – a scenario that provided little signal for oil price direction.

“Technically, July WTI is now trading below its five-, 10- and 20-day moving averages,” Seng said. “Overbought/oversold indicators remain in an ‘oversold’ condition. Volume for July WTI futures contracts have been up and down this week, approaching 1 million on yesterday’s move. The Commodity Futures Trading Commission (CFTC) reported this week that ‘bullish’ bets on crude continue to lessen as reflected in their Commitment of Traders Report.”

Looking ahead, Seng predicted that U.S.-China trade conflicts, global economic indicators and the safety of oil tankers in the Strait of Hormuz, Iran and, to a lesser extent, Venezuela will continue to command the oil market’s attention.”

Reformulated gasoline (RBOB) edged upward during Friday’s session. The July RBOB contract settled at $1.73 per gallon, reflecting a one-cent gain. For the week, RBOB is down by less than one percent.

“Unleaded gasoline futures continue to mirror the movement in crude prices, which is to be expected this time of year,” said Seng. “Total gasoline inventories now stand at 235 million gallons versus 237 million gallons last year at this time but are now approaching the upper limits of the five-year average for this time of year.”

Seng also pointed out that last week’s finished gasoline figure was slightly below the year-ago level.

“Both RBOB futures prices and retail prices remain lower than this time last year,” he said. “After hitting a seven-month high last month, the average U.S. price for gasoline is now on the decline thanks to lower oil prices and some analysts see the real possibility of sub-$2 at the pump in some areas of the country this summer.”

Henry Hub natural gas futures also posted a gain Friday, with the July contract adding six cents to settle at $2.39. Week-on-week, natural gas is up 2.1 percent.