crude oil futures 101

crude oil futures 101

August 18th, 2015

Crude oil futures eased in Asia on Tuesday with attention focused on demand prospects from China in the wake of a weaker yuan and looking ahead to U.S. industry estimates of stockpiles.

On the New York Mercantile Exchange, WTI crude for October delivery traded down 0.13% to $42.36 a barrel.

On Tuesday, the American Petroleum Institute will release its estimates of U.S. crude and refined products stocks at the end of last week. The estimates are followed by more closely-watched figures from the U.S. Department of Energy released on Wednesday.

On the Intercontinental Exchange (ICE), brent crude for October delivery wavered between $48.36 and $49.44 a barrel, before closing at $48.70, down 0.49 or 1.00% on the day. The spread between the international and U.S. benchmarks of crude stood at $6.38, below Friday’s level of $6.58 at the close.

Crude prices unexpectedly fell in the final hour of Monday’s trade upon the expiration of September options. In recent weeks, September crude options had fallen approximately $20 off their high from June trading and $10 from their peak in July as oil prices suffered its second severe downturn on the calendar year. A number of traders expected to see a spike in call options on Monday before expiry. Investors now await the expiration of September crude futures on Wednesday.

As crude prices continue to linger at its lowest levels in years, investors have expressed little optimism that the current supply-demand imbalance can be corrected in the short-term. Last week, the U.S. Energy Information Administration (EIA) lowered supply growth estimates for the remainder of the year to 650,000 barrels per day, below prior forecasts of a 750,000 bpd. The Energy Department’s supply forecasts still exceed demand growth expectations of 400,000 bpd, which remained unchanged.

OPEC, meanwhile, increased its crude production by 100,000 bpd in July to 31.5 million bpd, even as Saudi Arabian output fell mildly. Last November, OPEC triggered a prolonged battle for market share with the U.S. by keeping its production ceiling above 30 million bpd.

By next year, the EIA expects U.S. crude output to decline by 400,000 bpd from prior forecasts of a 150,000 bpd reduction. In terms of demand growth, the EIA anticipates increased growth of 190,000 bpd, up from previous estimates of 130,000 bpd. Crude prices have fallen sharply by 60% since peaking above $100 a barrel last summer, as supply continues to outstrip demand.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose more than 0.25% to an intraday high of 96.84 in U.S. afternoon trading. The dollar moved broadly higher after the National Association of Home Builders said its Housing Market Index for July rose modestly for the month, in line with analysts’ expectations.

Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.