Crude oil prices remained volatile over the blend of fundamentals which broadly can be categorised as rising supply from members of the Organisation of the Petroleum Exporting Countries (OEPC) and the United States, and expectations of tighter conditions due to fall in Iranian output after the US sanctions kick in from November.
OPEC oil output has risen in July to a 2018 high at 32.3 million barrels per day (mbpd) as Libyan production recovered and Iraq’s southern exports surged and stood at 3.12 million bbl.
OPEC will discuss in December whether producers can compensate for a sudden drop in Iranian oil supply after the US sanctions against Tehran start in November.
As per Russian ministry sources, Russian oil output stood at 11.21 mbpd in August, virtually unchanged from July as production curbs were eased. Chinese refiners increased their output in July to close to 12 mbpd, but at the same time exports of refined fuels fell to the lowest in four months to South Asian importers. As per the Energy Information Administration (EIA) monthly reports, crude oil production in the US rose 231,000 bpd, or 2 per cent, to a record 10.674 mbpd in June.
Natural gas prices are expected to witness a continued buying spree as the current levels of stocks at US storage reflects the lower build-up concerns for the upcoming withdrawal season which will continue from November to March. Separately, gains could be pared by more-than-expected weekly injections in inventory levels. However, overall inventory levels that are below the 5-year average will support the prices to trade higher.
The current futures contracts could witness selling pressure due to weakness in the spot months, but overall buying from lower levels is recommended. The far month contracts (November to March) are expected to trade stronger as speculators price in a storage deficit at the start of the winter heating season in November.
The author is a fundamental analyst with Karvy Comtrade