Crude fundamentals remain bearish

Weekly Energy Market Analysis

The crude (NYMEX:CLU14) oil complex is in another modest short covering rally after Brent (NYMEX:SCU14) crude oil declined to a fourteen month low Tuesday, while the spot September WTI contract heads into the history books today. The September WTI contract has been very volatile and has rebounded back above the $95/bbl level while the soon to be spot Octover WTI contract has recovered far less than the September contract in early morning trading.

Overall oil fundamentals still remain bearish with Libyan production is now at about 560,000 bpd according to the National Oil Company. North Sea production is expected to increase in September as the August maintenance program winds down while supplies in the United States remain robust as Cushing stocks built strongly as reported by the API late yesterday afternoon (see below for more details). With overall supply more than ample and global oil demand still lackluster there is no shortage of oil anyplace in the world irrespective of the several evolving geopolitical events around the world.

As shown in the table above all of the commodities in the oil complex are now not only trading below last year’s average but also below the year to date average for 2014. A few spreads are above this year’s average (WTI cracks and HO/Gasoil and Brent/WTI spread). The geopolitical price risk premium has been steadily receding from the flat price of oil since peaking in mid-June. Since then the Sep WTI contract has declined by about $12/bbl or about 11.4 percent.

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