Oil Prices Rise
Oil prices surged unexpectedly after the closure of Tuesday 1st August trading session, with industry experts suggesting that the phenomenon was caused by falling U.S crude inventories.
US light crude prices hiked by more than 3pct to stand at $45.76 by 4:51 PM ET, thereby ending the market exchange session at a rate 1.4pct higher than before. As for Benchmark Brent crude, it was up by $1.31 at $48.19 per barrel, translating to a 2.8pct jump.
Despite these trends, oil rates slightly reversed the losses earlier witnessed on Tuesday. This came after the U.S Energy Information Administration subsidized its forecast for America’s oil production in 2018. While distillate inventories fell down by about 2.1 million barrels, stocks at the Cushing, Oklahoma depot increased by 1.7 million barrels.
According to the American Petroleum Institute, overall crude stockpiles in the country dropped by 8.1 million barrels by the end of July 7th 2017, gasoline stocks also dropped by around 800,000 barrels. This is the single largest drawback since September 2016.
The fall down compares to pundit expectations of a reduction of 3.6 million barrels of oil, for the week that ended August 11th 2017. Nevertheless, inventories for gasoline increased by 301,000 barrels for the same time period, contrasting with analyst prospects that they would drop by 1.5 million barrels.
The crude costs fell despite an export terminal shutdown in Libya, sparked by worker protests over weakening demand from China and better working conditions. The Zueitina oil terminus in Libya stopped loading cargos after port workers protested.
Quoting the oil depot’s workers’ union head, Merhi Abridan, he said the strike will affect operations in that oil coming from fields around Zueitina would be stored at the terminal for the entire duration of the protest, and this will likely trigger a spike in exports that may affect oil prices as is currently being witnessed in the U.S.
At the same time, China’s oil refineries also saw their lowest daily output in July at approximately 10.71 million barrels a day-this according to statistics from China’s National Bureau of Statistics.
Even in Europe, refineries increased their stock intake for crude oil in June due to high prices, something that’s also having an overall net effect on gasoline prices. This shows that the oil price hike triggered by high scale inventory is not only affecting America but also other countries around the world.
Some experts believe the crude prices might have been affected by bank forecasts predicting drastic declines this year, and in 2018. For instance, BNP Paribas cut back its forecasts on Brent by $9 to settle at $51 per barrel for 2017. Barclays also reduced its 2017 Brent forecasts to $52 a barrel for both 2017 and 2018.
Currently, crude prices are at a level of 17pct below the opening rates in 2017, despite a deal fronted by OPEC to start cutting production as of January. Analysts see U.S production totaling to 9.9 million barrels a day going over to 2018, down from an earlier prediction that had put it at 10 million per day.
OPEC’s non-compliance with industry standards also continues to affect other traders, the organization recently showed an increase of 172,600 barrel per day in oil generation in July for its member states only, with the statistics based on reliable secondary sources. Consequently, total daily output for OPEC in the month of July was 32.8 million bpd, an increase from 32.6 million bpd in the previous month.
OPEC also entered into agreement with Russia and other major oil exporters to subsidize output by about 1.8 million bpd until March 2018, even though production elsewhere has increased as OPEC continues to hold back.
In U.S alone, output has hiked by more than 10pct over the past year to stand at 9.34 million bpd. Meanwhile, OPEC members Nigeria and Libya who are exempt from limits in production have also increased output significantly, thereby leading to a large scale inventory globally.
Nevertheless, without any meaningful drop in oil inventories or decline in America’s drilling and production, Goldman Sachs predicts that U.S crude prices could go below $40 per barrel if market trends remain constant.
Experts are also closely monitoring US shale production, which is going on full scale despite fluctuations in oil prices, which haven’t been able to stay above $50 for any considerable amount of time. Analysts are yet to see how the shale will affect oil market prices in the next months to come.