Oil prices up on release of European storage data

Banks cut oil prices forecasts on oversupply concerns

Oil prices, gasoline and heating oil futures regained some lost ground on Tuesday after a report showed European stockpiles dropped last month, signalling to analysts that the market may be healthier than many believed.

According to data from Euroilstock, European refineries increased their crude oil intake in June, but stocks of oil products, particularly diesel, fell.

“That tells you demand globally is a lot stronger than people thought it was going to be and that is having a net positive effect on heating and gasoline prices,” Scott Shelton, energy specialist at energy brokerage ICAP told Reuters.

Brent crude settled up 64 cents to $47.52/barrel and US WTI was up 64 cents to $45.04.

US heating oil futures were up almost 2 per cent at midday.

The European data was released prior to crude stocks data set to be released by the American Petroleum Institute and the US Energy Information Administration later on Tuesday and Wednesday morning, respectively.

Analysts polled by Reuters forecast a drop in US crude inventories by 3.2 million barrels and an increase in gasoline and distillate stocks by 1.5 million barrels.

Earlier in the session, crude prices fell on dour predictions from banks for oil prices for 2017 and 2018.

“The fundamental mood has taken a turn for the worse,” Harry Tchilinguirian told Reuters Global Oil Forum. Tchilinguirian is the head of oil strategy at French bank BNP Paribas.

BNP Paribas cut its Brent forecasts by $9 to $51/barrel for 2017 and by $15 to $48/barrel for 2018.  As well, Barclays dropped its 2017 and 2018 forecasts to $52/barrel from $55 for 2017 and $57 for 2018.

Saudi Arabia reported to OPEC that it raised its crude production to 10.07 million barrels per day (b/d) last month.  In May, the kingdom produced 9.88 million b/d.

As part of the OPEC supply cut pact, Saudi Arabia had agreed to keep its production at 10.058 million b/d.  June was the first month under the OPEC pact where the Saudis exceeded their target output since the agreement was implemented on Jan.1.

According to Reuters, OPEC members were under pressure to increase supply to customers, particularly in Asia.  Several sources report that Saudi Aramco will meet its customers’ crude requirements in India and many other Asian countries in August.

“There is no (supply) cut” even for heavier grades such as Arab Medium and Heavy crude in August, one of the sources said.

The increase in Saudi production comes at a time when US output is climbing and two OPEC pact-exempt countries, Nigeria and Libya, have brought back their operations after years of unrest devastated their oil industry.

Goldman Sachs said without a significant drop in crude inventories or a decline in US drilling and production, US crude could drop below $40/barrel.