Oil prices reaching $50 per barrel
By Fatma Babayeva
Global oil prices are nearing to $50 per barrel in the markets. Obviously, this rise was caused by the supply outages in some oil producing countries like Canada and Nigeria due to the recent incidents.
Cost of June futures of WTI crude in New York Mercantile Exchange (NYMEX) increased by 0.92 percent to $48.16 per barrel on May 17. In the meantime, prices of July futures of Brent benchmark rose by 0.49 percent to $49.21 per barrel in London ICE.
In the meantime, price of the Azeri LT CIF produced at the Azeri-Chirag-Guneshli block of oil and gas fields reached to $50.3 per barrel at the Italian port of Augusta on May 16, which is $1.2 more compared to the price on May 13.
In addition, OPEC oil basket's price stood at $44.37 per barrel on May 16.
However, once above mentioned countries that cut their oil production levels restore their previous output of oil, the oil glut problem of the market will most likely rise again.
Oil prices will eventually recover but uncertainty over rebalancing the market will ensure the volatility over the coming months, head of commodity strategy at Saxo Bank Ole Hansen told Trend news agency on May 16.
It was a mixed week for commodities with gains in energy and agriculture just about offsetting losses in precious and industrial metals, Hansen said, adding that overall, the sector has settled into a range during the past three weeks as strong gains seen during the first four months of the current year have increasingly been difficult to replicate.
Moreover, the weakening dollar during the first four months of 2016 was also undoubtedly an important driver, but not the only one behind the revival seen across commodities this year, according to Hansen.
However, the dollar's strength was not enough to prevent crude oil having another attempt at breaking higher towards the key psychological level at $50 per barrel, he said reminding that disruptions in Canada and Nigeria have temporarily removed a large chunk of supply from the market.
Both the Brent and WTI variants of crude made a renewed attempt to break higher this past week. Global supply disruptions and robust demand have helped support the strong surge seen since the early 2016 lows, Hansen said.
He stressed that the latest supply disruptions from Venezuela and Canada to Nigeria have removed a sizable chunk of the current daily oversupply. These developments, combined with the first seasonal inventory draw in the US and a bullish assessment on global demand from the IEA, all helped support prices which increasingly had been showing signs of fading positive momentum, according to Hansen.
After creating a double-top on the charts, both oils retraced some of the weekly gains on May 13, Hansen said, adding that crude oil maintains a strong correlation to the dollar and the dollar strength seen last week - along with reports that OPEC production reached a new multi-year high during April - helped attract some profit-taking.
While OPEC continues to increase production - mostly due to Iran - it is increasingly dependent on supply reductions elsewhere to support current price levels, he said.
The slowdown in US production remains price-sensitive and as WTI crude oil (for calendar 2017) trades within a whisker of $50 a barrel, the potential for a fading production slowdown would upset current expectations of when the market will rebalance, Hansen said.
Saxo bank maintains the view that the rebalancing process currently underway remains very price-sensitive. It is primarily being supported by the involuntary slowdown in non-OPEC (read US shale oil) production together with multiple and mostly temporary supply disruptions.
While a pop towards $50 a barrel has been observed during the current quarter, the risk increasingly remains skewed to the downside. U.S. inventories have begun their annual decline and during the coming weeks additional reductions will be supported by reduced imports from Canada as they slowly return to full capacity following the wildfires, Hansen added.
With inventory growth now slowing, the focus will turn to refineries and strength of their demand for crude to refine. Implied gasoline demand remains a healthy 325,000 barrels above last year but against this inventories sit some 14 million barrels above (and refinery margins some 15% lower than) this time last year, he said.
Oil prices will eventually recover in order to attract renewed investments and drilling activity. For now, the timing of when supply and demand finally cross remains the big unknown and one that will ensure plenty of volatility over the coming months, representative of the Saxo bank said.
Energy companies, banks and energy agencies keep their forecasts optimistic for the oil prices. According to the forecasts, global oil prices will rise above $50-$60 per barrel in 2016 and 2017. However, it will take a long time for oil prices to surge back to the highs above $140.
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Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva
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