Markets

Energy Sector Update for 08/03/2018: BHGE, XOM, CVX, RDS.A, RDS.B, BP, E, COP, TOT, PBR, PBR.A, EC, SLB, HAL, NOV, SPN

(Updates with the price move, EIA/Goldman reports, and general market commentary from the first paragraph.)

Crude prices ended the week slightly lower after supply pressures mounted amid the threat of US sanctions on exports from Iran, one of the world's biggest oil producers.

Oil prices turned soft after crude stockpiles in the US recorded a surprise surge last week because of a decline in exports, the Energy Information Administration said Wednesday. Inventories jumped by 3.8 million barrels over a week to July 27 - that compared with the forecast of a 2.8 million-barrel drop in a Reuters' poll of analysts.

In line with a pledge to increase supply, reportedly at the behest of the US President Donald Trump, the output from the Organization for Petroleum Exporting Countries (OPEC) increased by about 340,000 barrels to about 32.7 million barrels per day (b/d) in July, a report from MarketWatch said, citing data compiled by S&P Global Platts.

Russia also lifted its production in July by 150,000 b/d, according to a report from the Wall Street Journal that cited data from JBC Energy, marking the end of a production-cutting policy that OPEC and certain non-OPEC producers such as Russia have implemented since January 2017.

In the US, total production of oil declined by 30,000 b/d month-on-month in May as onshore output grew at a slower pace, according to the EIA. A Goldman Sachs ( GS ) report said Aug. 1 that the drop in US output was driven by declines in the Gulf of Mexico, which outweighed the increase in output in the Lower 48.

"While we continue to see US onshore growth in May, the pace of growth slowed relative to the strong, 1.5%-3.0% monthly growth seen in February-April," Goldman analysts led by Brian Singer wrote in the research note.

Overall, the May EIA data fell short of both weekly EIA/monthly International Energy Agency figures by about 275,000 b/d, "with the latest weekly data implying a continued pick-up in growth from May levels," Singer added.

Among the factors that helped put a floor under prices this week was an assessment of the impact of US sanctions on Iran, which will lower the supply of Tehran's exports.

Even though President Trump tweeted earlier this week that he would be willing to meet with Iranian President Hassan Rouhani, the role of China, which is embroiled in a trade war with the US, as one of the biggest importers of Iranian crude will probably have a notable impact on Iranian production and export levels.

Meanwhile, in marginally positive news for the oil market, Baker Hughes ( BHGE ) said late Friday that the number of oil rigs operating in the US fell by two to 859. It said the combined oil and gas rig count in the US declined by four to 1,044, as gas rigs decreased by three to 183.

In Canada, the number of oil rigs in operation slid by two to 152, while the number of gas rigs increased by two to 71. Consequently, the North American total slipped by four to 1,267 in the week and compared with 1,171 a year ago, the data, which tracks the seven-day period ending Aug. 3 showed.

Intraday Friday, both the West Texas Intermediate and Brent futures traded lower by at least 0.5%.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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