The sleepiest oil market since 2013 will probably limp through the second half of the year as well.
Crude traded in a $5 range in June, the narrowest in 19 months. Volume was the lowest since December and open interest—the number of futures contracts outstanding—was the least since January. New York-traded futures, which have swirled around $60 a barrel for the past two months, will average about $59 in third quarter and $63 in the fourth, according to forecasts of 22 analysts compiled by Bloomberg.
Neither the potential return of Iranian crude to the market nor the long-anticipated decline in US production is stirring a reaction. While gasoline demand has increased faster than projected, keeping the oil glut from growing, record production from OPEC’s biggest members and potential for a quick increase in US shale output have capped a rebound in prices from the biggest drop since 2008.
The current conditions contrast with what the market saw a year ago. West Texas Intermediate crude fell almost 60% from $107.26 in June 2014 to $43.46 in March before rebounding about 40% into the current trading range. The US benchmark grade lost 62 cents to $56.31 a barrel in electronic trading on the New York Mercantile Exchange at 10:36 a.m. New York time.
Trading Volume
Volume topped 800,000 contracts a day in the first four months of this year. It fell to 636,128 last month, down 40% from February’s record high of 1.07 million, according to exchange data compiled by Bloomberg. Open interest fell to 1.612 million on June 22, the lowest since January.
After rallying from March’s six-year low, crude’s upside has been capped by the Organization of Petroleum Exporting Countries’ pledge to keep pumping more crude and rising US output despite the unprecedented drop in drilling rigs.
OPEC Production
OPEC produced 32.1 million barrels a day in June, above its 30 million quotas for a 13th month, according to data compiled by Bloomberg. US output was 9.6 million barrels a day last week, close to a weekly record, according to the Energy Information Administration.
“We are more likely to continue trading in a range until we see a material shift in US production,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said by phone.
US gasoline demand increased to 9.54 million barrels a day in the four weeks ended June 26, the highest level since 2007, according to the EIA.
Making Room
Iran has urged OPEC to make way for it to pump 4 million barrels a day, back to the level of about 3.8 million before western sanctions intensified. The country produced 2.85 million in June, according to data compiled by Bloomberg.
Some investors expected oil to move higher as the US rig count decreased. Rob Thummel, a managing director at Tortoise Capital Advisors LLC in Leawood, Kansas, which oversees $16.9 billion, said oil may move above $65 in the second half and into a $65-$80 range eventually as US production slows.
Rigs drilling for oil rose 12 this week to 640, according to Baker Hughes Inc. That’s up from the previous week’s 628, the least since August 2010.
