Oil prices recover from Brexit shock
By Fatma Babayeva
Fluctuating around $50 a barrel recently, oil prices are experiencing a slight rise as Brexit shock fades.
On the New York Mercantile Exchange, the price of WTI crude’s contracts with August delivery stood at $49.42 a barrel on June 30 by 6:50 am, whilst August futures of North Sea Brent benchmark equaled to $50.24 a barrel on London ICE at the same day.
A barrel of Azeri Light crude extracted in Azerbaijan’s Azeri-Chirag-Guneshli complex cost a bit more in comparison to international crudes by standing at $50.98 a barrel on June 30, which is $2.4 a barrel increase, according to Azerbaijan’s energy company SOCAR’s Marketing and Operations Department.
In the meantime, OPEC’s oil basket price amounted to $45.82 a barrel on June 29.
These prices are anticipated to rise by the end of the current year and throughout the next year by many outstanding energy and financial agencies, as expected rebalancing of the global oil market will bolster petroleum prices.
Previously, oil prices, which collapsed below $30 a barrel in the beginning of the year, hit the psychological oil price barrier of $50 a barrel in late May.
On the other hand, rebalancing is still at an early stage, said analysts of the U.S. JP Morgan bank said in their weekly Oil Market report.
During the second quarter the rebalancing process in oil markets has been accelerated largely by the elevated level of unplanned supply outages; notably in Canada and Nigeria, analysts noted in the report.
With unplanned supply outages retreating from the recent five-year high and a parallel pick up in end-user demand and refinery crude runs, markets appear close to balanced, they said.
The International Energy Agency (IEA) in its June report said that oil-production outages world-wide cut global supply by nearly 800,000 barrels a day in May, the first significant drop since early 2013.
At the same time, the IEA warned that the surplus could reappear in the second half of next year.
In the first quarter of 2016, global oil demand stood at 1.6 million barrels a day, according to the IEA’s estimates. The agency boosted its demand forecast for the rest of the year to 1.3 million barrels a day, up from 1.2 million barrels a day.
JP Morgan analysts in their report noted that overall macro balance for the second quarter of 2016 balances is only marginal (-0.1 million barrels per day) draw and that seemingly small swings in supply and demand can have magnified impacts on oil price dynamics.
Analysts look for moderate downside to prices in the short-term to fade and for prices to edge back up to $50 a barrel in one month’s time.
Oil prices rose on June 29 as traders moved money back into markets hit by the initial shock of Britain's vote to leave the EU, while a potential oil workers strike in Norway and a crisis in Venezuela's oil sector also provided support, reported Reuters.
Price forecasts of different agencies still vary slightly. The U.S. Energy Information Administration (EIA) says Brent prices may reach $60 a barrel by the end of 2017, and to average $62 a barrel during the next year.
By the end of the current year, oil prices will be higher than they are now, according to the EIA.
British consulting company Capital Economics also expects oil prices to gradually rise starting from 2017 and exceeding $50 a barrel level in the course of the next year.
Brent price, according to the analysts’ forecasts, will average $50 a barrel in the first quarter of 2017, then rising to $55 a barrel in the second quarter and $57.5 a barrel in the third quarter of the next year.
The price for Brent will average $42 a barrel in the third quarter of 2016 and $45 a barrel in the fourth quarter of the year.
“The UK will remain a member of the EU for at least two years, so very little will change in the short term,” analysts of the Capital Economics said in their report.
The UK is a relatively small consumer of oil. The EU as a whole, including the UK, consumes about two thirds as much oil as the U.S. and only about 13 percent of total demand. As such it would take a large fall in growth to have much of an impact on global oil demand, they added.
Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva
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