Just this week, oil futures fell again after the United States Energy Information Administrations reported an unexpected build in weekly crude inventory. There was a “surprise” build of 1.671 million barrels, to a total of 521.1 million barrels in a time when “Analysts surveyed by The Wall Street Journal had expected supplies to fall by 1.6 million barrels. Gasoline stocks were also up 452,000 barrels. Analysts had expected no change.” The report from the EIA also noted that this was a historic high for this time of year.
As of writing, oil futures are at their lowest levels in more than three months. Compared with earlier this year, when prices were at an extreme low, prices had risen significantly over the past five or so months. The global surplus is what drove prices so far down at the end of last year and beginning of this year, but worker strikes in Kuwait, the wildfires that broke out right around the sand drilling areas in Canada, and attacks by militants in Nigeria had all led to less global supply and rising prices since March.
Bloomberg agrees: “West Texas Intermediate crude declined 2.4 percent. U.S. oil explorers have boosted the number of active rigs by 55 since the start of June to 371, with 14 added last week, Baker Hughes Inc. said Friday. Government data show U.S. gasoline supplies are at the highest seasonal level in decades, which may spur refiners to shut sooner than usual for maintenance. Oil also slipped as the dollar rose to an eight-week high, curbing investor appetite for commodities.”
There is also China, who are traditionally the the world’s second-largest oil consumers. They have started pushing out higher exports of distillates to the regional market in the last few months in an attempt to rid themselves of unwanted barrels. The concern here is that a rising amount of available gasoline is going to lead to refiners buying less crude oil.
Buying less crude oil will make the glut of global crude even worse, which will lead to this problem lingering. Prices could remain down, and could put those who produce crude in an intense amount of pressure to maintain business with lowered costs. In addition, a strong US dollar in the market makes us the more expensive option in the global market, which is helping to weigh on the price domestically.
It’s the last week of July and we’re looking at abundant gasoline supplies,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $4.9 billion. “We’ll probably see an early rise in crude inventories as refinery operations are slowed. We’re not anticipating a return to the old lows but there’s room to the downside.”
From CNBC: “My view is that oil prices will find a low between $39 and $42 per barrel over the coming weeks,” said Ric Spooner, chief market analyst at CMC Markets. “After that, however, we are coming closer to seeing a balanced market again,” he added, saying that $50-$60 a barrel would represent such supply and demand balance.
Eldar Saetre, chief executive of Norwegian state oil producer Statoil, said he expects the market to fall into balance over the course of this year: “We see clear signs that we are on our way to a balanced oil market,” he said.”