Oil prices are rebounding after comments by the Iranian Oil Minister Bijan Zangeneh that Iran was ready to negotiate with Saudi Arabia and Russia to engineer a production cut of 1.0 million barrels of oil a day. The Iranians are probably making that comment because they are disappointed with the price and lack of demand for their oil. It seems that the world was not just waiting around to buy Iranian oil.
The American Petroleum Institute (API) report was not as bearish as anticipated. The API reported that crude oil inventories increased by 2.4 million barrels, smaller than the three million plus barrels that the market was expecting. In Cushing, Oklahoma, the API reported that supply increased by 715,000 barrels.
The American Petroleum Institute also reported another increase in gasoline inventory of 3.1 million barrels. That may be one reason the Energy Information Administration (EIA) in their Short Term Energy Outlook is predicting that gas prices will stay below $2.00 a gallon in 2016 for the first time since 2004.
The EIA says that U.S. retail regular gasoline price is forecast to average $1.98/gallon (gal) in 2016 and $2.21/gal in 2017, compared with $2.43/gal in 2015. In January, the average retail regular gasoline price was $1.95/gal, a decrease of 9 cents/gal from December and the first time monthly gasoline prices averaged below $2/gal since March 2009. The EIA expects the monthly average retail price of U.S. regular gasoline to reach a seven-year low of $1.82/gal in February 2016, before rising during the spring.
The Energy Information Administration is also lowering their outlook for U.S. oil production. The EIA says that U.S. crude oil production averaged an estimated 9.4 million b/d in 2015, and it is forecast to average 8.7 million b/d in 2016 and 8.5 million b/d in 2017. The EIA estimates that crude oil production in January was 70,000 b/d below the December level, which was 9.2 million b/d.
Of course that may not be enough for them to raise their crude oil forecast. The EIA says the forecast for the average WTI price in May 2016 of $36.00 a barrel should be considered in the context of recent Nymex contract values for May 2016 delivery suggesting that the market expects WTI prices to range from $21/b to $58/b.
The EIA Bent crude oil prices are forecast to average $38/b in 2016 and $50/b in 2017. Forecast West Texas Intermediate (WTI) crude oil prices are expected to average the same as Brent in both years. However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook.
The back end of the crude oil curve came down after the Energy Information Administration predicted that the oil market would not see drops in production fast enough to keep up with sinking demand.
The crude oil market will take note of the Fed Chairman’s Testimony ahead of Congress. Dow Jones reports that Fed Chairman Janet Yellen goes before the House Financial Services Committee Wednesday at 10 a.m. EST, but her testimony and the Fed’s monetary policy report are scheduled to be released at 8:30 a.m. EST. The oil market is worried about slowing growth and would hope that a dovish Janet Yellen could help us sop up some over supply!