Oil Futures finish Higher as July WTI Contracts Expire and Traders Weigh Prospects for Demand

In another victory for bullish sentiment, global benchmark oil prices advanced after the July and August NYMEX Crude Oil Contracts expired Wednesday, shaving Monday’s losses.

Harsh winter weather did not interfere with the two-day expiration period, said Mark Connelly, chief market analyst at Canaccord Genuity.

“The government’s shut-down is usually nothing more than a blip on the scale,” Connelly told readers of the FuelFix App, “but this time it is surprising as it is completely unrelated to prices.”

Connelly did note that prices have not been affected because current prices are “being priced in uncertainty.”

Meanwhile, investors were closely watching weekly reports from the Energy Information Administration on oil inventories. On Wednesday, data showed that US crude oil stockpiles fell by 5.1 million barrels last week, slightly more than analysts’ expectations.

On Wednesday, crude oil futures jumped as much as $1.21 to $62.65 a barrel as oilfield inputs at Cushing, Oklahoma, the delivery point for NYMEX crude futures, fell by 64,000 barrels. The 4.3% decline last week was attributed to Hurricane Beryl and spot premiums in the Gulf of Mexico, according to Connelly.

The US May oil imports for the month fell to 8.6 million barrels per day compared to 8.7 million barrels a day in April. The US imported 8.7 million barrels per day in March and 9.3 million barrels per day in February.

This report is down slightly to the 8.6 million barrel per day forecast. Earlier in the day, Brent crude futures reached a daily high of $66.67 a barrel but ended lower to settle at $66.03.

At 11:27 AM Eastern, Brent crude futures gained 56 cents, or 0.7%, to $66.03 a barrel. US light crude for July delivery traded 44 cents higher at $62.87 a barrel.

Crude futures also gained ground on data from the Energy Information Administration (EIA) showing US oil production climbed to a new record in April, climbing to 9.5 million barrels per day. US production is on pace to post record levels in late July.

A report from the US government Wednesday showed that American shale production has fallen by 13% since late March, when an oil price correction started. US oil production, adjusted for gasification, has dropped by 10% from its peak in early April, said Robert Campbell, head of oil products and markets research at Energy Aspects. “This suggests demand would have to contract and the driving season would have to slow down very significantly,” said Campbell.

New methods of production, including fracking, brought some US crude production into the sweet spot, meaning more money for oil producers as crude sold for about $90 to $100 per barrel versus $80 per barrel a few months ago. However, “increased supply has outstripped growth in demand in the near term,” said Thomas Stolper, research director at the Energy Services Institute.

Oil prices fell sharply in April as Saudi Arabia and other OPEC and Russian producers pumped more crude at a time when prices were in a “sweet spot,” and the glut is expected to persist in the short term. OPEC said Wednesday that its compliance with oil production cuts fell to 79% in May, below the 90% level many economists expected.

“Overall, if we see higher production that leads to a drop in the price in a relatively narrow period of time, it seems likely to me that the (OPEC) Organization of the Petroleum Exporting Countries would not be seen as committed to reduce production,” said Pavel Molchanov, a Trefis analyst.

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