Re­turn of dis­rupted sup­plies press­ing down oil prices

Azer News - - Analysis - By Fatma Babayeva

A re­cently lthough the oil prices dou­bled to above $50 a bar­rel from the bot­tom prices of Jan­uary 2016, the mar­ket is yet skep­ti­cal over fur­ther in­crease of oil prices.

The re­cov­ery in crude prices looks un­likely for now as dis­rupted sup­plies af­ter Cana­dian wild­fires re­turn to the mar­ket to pro­long global oil glut prob­lem.

The In­ter­na­tional En­ergy Agency (IEA) ex­pects oil out­put of Canada to surge to pre­vi­ous lev­els by mid-July of the cur­rent year.

As a re­sult of in­creas­ing oil pro­duc­tion in Canada, oil prices be­gan plum­met­ing again this week af­ter ex­pe­ri­enc­ing a slight in­crease over the last three days.

July con­tracts of WTI crude dipped by 2.09 per­cent to $48.34 a bar­rel in NYMEX on June 21 by 9:051 am, while Au­gust con­tracts of Brent bench­mark crude slumped by 2.07 per­cent to $49.60 a bar­rel in Lon­don ICE on the same day by 9:01 am.

A bar­rel of Az­eri Light CIF, crude oil that Azer­bai­jan ex­tracts in Az­eri-Chi­ragGu­nashli, cost $50.8 at the Ital­ian port of Au­gusta on June 20, while AZ­ERI Light FOB Cey­han oil price stood at $49.96 a bar­rel on the same day.

OPEC’s oil bas­ket price stood at $46.24 a bar­rel on June 20.

Dur­ing the next few days, the oil is ex­pected to be traded not based on the mar­ket fun­da­men­tals but on Brexit – the ref­er­en­dum that will de­cide whether Great Bri­tain stays or leaves the EU - as its leave from the union is spec­u­lated to af­fect the eco­nomic growth of the old continent and over­all the global eco­nomic growth.

Mean­while, the U.S. En­ergy In­for­ma­tion Ad­min­is­tra­tion re­ported that the oil in­ven­to­ries of the coun­try dropped for fourth week in a row by hit­ting 531.5 mil­lion bar­rels while the oil drilling ac­tiv­i­ties kept ris­ing for the last three weeks.

In late May, the an­a­lyst of the U.S. JP Mor­gan Bank re­vised up­ward their fore­casts for oil prices in 2016 and 2017. The bank’s ex­perts be­lieve that the sub­stan­tial re­bal­anc­ing of oil mar­ket will sup­port the prices through­out 2017.

Ear­lier in June, IEA also pro­jected sup­ply and de­mand in the global oil mar­ket to come al­most into bal­ance in 2017 against the back­ground of un­ex­pected sup­ply cuts in North Amer­ica, Africa and South Amer­ica.

JP Mor­gan’s analysts raised 2016 price fore­casts to $45.3 a bar­rel for Brent and $44.66 a bar­rel for WTI. The bank fore­cast 2017 prices at $55 a bar­rel for both WTI and Brent.

Analysts ex­pect global oil de­mand growth at around 971,000 bar­rels per day in 2016 and 1.14 mil­lion bar­rels per day in 2017.

The big pic­ture sup­ply ad­just­ment that was an­tic­i­pated to take hold in the sec­ond half of the cur­rent year has ar­rived one quar­ter ear­lier than ex­pected. Out­ages in Nige­ria, Canada and Libya have off­set higher Ira­nian and Rus­sian sup­ply, the analysts of JP Mor­gan said.

Ad­di­tion­ally, bal­ances in the sec­ond quar­ter in 2016 are ma­te­ri­ally tighter in part as Chi­nese strate­gic stock­pil­ing reached 0.9 mil­lion bar­rels per day in April, said the bank’s ex­perts by adding that real oil prices are now back to av­er­age.

Mean­while, the IEA fore­cast global oil de­mand to reach 97.4 mil­lion bar­rels per day in 2017. The agency's es­ti­mates show that last month global oil out­put equaled to 95.4 mil­lion bar­rels per day.

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