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8 Factors Behind The Fall In Oil Prices by mujaya1(m): 8:05pm On Jun 20, 2017 |
8 factors behind the fall in
oil prices
Arab News | Published — Tuesday 20
June 2017
JEDDAH: The Organization of the Petroleum
Exporting Countries (OPEC) and its allies
from outside of the group last month
extended a deal to curb their production by
1.8 million barrels per day (bpd) for another
nine months, ending in March 2018. In
spite of that agreement, oil prices are still
weak and they are trending down for four
weeks in a row.
Here are eight factors that are behind the
current fall in oil prices:
1. High exports from OPEC: Despite the
reduction in production from oil producers,
the level of exports is still high as many
tanker-tracking data showed. Morgan
Stanley in a report on June 8 said that
tanker-tracking data showed that
waterborne exports increased strongly in
May across the world, up by 2.2 million bpd
from April and 3.3 million bpd from May
2016.
2. High global oil inventories: Saudi Energy
Minister Khalid Al-Falih told Arab News’
sister publication Asharq Al-Awsat in an
interview on June 19 that oil inventories
globally are down following the deal. The
Organization for Economic Co-operation
and Development’s (OECD) oil stocks went
down by 65 million barrels from their peak
in July 2016. However, Al-Falih
acknowledged that US stocks are falling less
than expected. As for the market, the fall in
inventories is too slow to trigger a price
response. The International Energy Agency
(IEA) estimates that oil stocks in the OECD
are still at 292 million barrels above their
five-year average. Energy researcher
Bernstein estimates that US stocks must go
down by 4 million barrels every week for it
to go back to normal levels.
3. Concerns on gasoline demand: The
outlook for US gasoline consumption this
summer is a concern. Gasoline stocks rose
2.1 million barrels and gasoline inventories
currently sit at 242.4 million barrels, or 9
percent, above the five-year average of 223
million barrels, according to the US Energy
Information Administration (EIA) data.
4. Increase in the number of rigs: The
number of US oil rigs is continuing to rise.
Drillers added more oil rigs for a 22nd
straight week, marking the biggest streak
in at least three decades, according to
weekly data from Baker Hughes released on
June 16.
5. Worries about supply in 2018: The IEA
said in its report on June 14 that supply
from non-OPEC producers next year may
offset cuts from OPEC and its allies. Oil
demand is set to grow by 1.4 million bpd in
2018 but supplies outside OPEC will grow
even faster, by almost 1.5 million bpd.
6. Oil prices in contango: Brent and West
Texas Intermediate (WTI) crudes, down
almost 15 percent since late May, are both
trading in contango, with forward prices
higher all the way into the next decade.
Contango is a structure that normally
denotes weak demand for spot cargoes as
it means oil prices in the future are higher
than today’s, thus it makes producers store
crude for future sale.
7. Return of oil output from Libya, Nigeria:
Libyan oil production this week is up by
200,000 to 300,000 bpd from early May.
Nigeria is also pushing for an additional
output of 200,000 bpd this month. The
market is concerned that this will add to
oversupply, but Al-Falih said on June 19 that
the increase is within agreed limits set by
the original deal last year.
8. Speculation: Al-Falih blamed volatility in
oil prices on speculative trading as many
are trading on headlines and on forecasts
of supply growth from resources “that may
not happen.”
sources:www.arabnews.com/node/1117541/business-economy |
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