MARKET WATCH: Crude prices retreat after briefly eclipsing $50/bbl

Crude oil prices briefly rose above the $50/bbl threshold on May 26 before ending the day down slightly. Those losses continued as trading began on May 27 on reports of a strengthening US dollar.

The Wall Street Journal Dollar Index increased 0.3% on May 27 vs. a 0.2% drop a day earlier (OGJ Online, May 26, 2016), due in part to a possible near-term interest rate increase.

The recent higher prices have been supported by supply disruptions in Canada, Nigeria, Libya, and Venezuela, which some analysts believe won’t last.

“The return of disrupted supply and [the Organization of Petroleum Exporting Countries’] increasing of production lay the foundation for a wider market surplus, and for prices to fall back below $40[/bbl] in the short run,” Giovanni Staunovo, commodity analyst at UBS, said in a research note. Analysts at the financial services firm project that OPEC production will rise above 33 million b/d during the summer.

Meanwhile, market observers await the May 27 release of this week’s US rig count from Baker Hughes Inc. Last week’s movement was the lightest of the year thus far, with oil-directed rigs sitting unchanged (OGJ Online, May 20, 2016).

Oil and gas consulting service Rystad Energy noted this week that rising crude prices could contribute to a shrinking inventory of drilled but uncompleted wells in the US (OGJ Online, May 25, 2016). If prices are economic for drilling, companies may look to spud more wells.

The latest crude production data from the US Energy Information Administration show that US output during the week ended May 20 averaged 8.77 million b/d, a decline of 24,000 b/d compared with the previous week’s average and 800,000 b/d year-over-year.

Energy prices

Both the July and August crude oil contracts on the New York Mercantile Exchange closed down 8¢ on May 26, settling at $49.48/bbl and 49.88, respectively.

The NYMEX natural gas contract for June delivery fell 2.9¢ to a rounded $1.96/MMbtu. The Henry Hub price was $1.75/MMbtu, dropping 2¢.

Heating oil for June delivery declined 1.14¢ to a rounded $1.50/gal. The price for reformulated gasoline stock for oxygenates blending for June decreased 2.21¢ to a rounded $1.62/gal.

The July Brent crude contract on London’s ICE dropped 15¢ to $49.59/bbl. The August contract lost 6¢ to $50.17/bbl. The June gas oil contract increased 75¢ to $448.25/tonne.

OPEC’s basket of crudes price for May 26 was $45.43/bbl, up 46¢.