As the Oil prices resumed their plummet in Asia trade, the story wasn’t any different in the US where a colossal amount of the previous session’s futures gains went down with the plunged US stockpiles.
Following what is widely foreseen by the skeptics as the onset of an unpleasant trend, oil prices fell on Friday, despite the high levels of optimism exhibited by the analysts. The principal contracts had climbed by over $2 yesterday where Brent even surpassed the $50 a barrel mark after the Department of Energy’s announcement about the 14.5 million barrels slump. The news and the subsequent gains had created an aura of buoyancy, but the joy was never to be.
It was revealed that the decline in the number of barrels had been triggered by the prevailing Atlantic storm that led to the postponement of imports and shutdown of some wells. Oil and natural gas from the affected Gulf of Mexico are, perhaps the closed production points, as the hard-hitting Hurricane Hermine prevails. It is, in fact, the torrid weather conditions that are slowing down the movement of oil tankers and the closing down of major off-shore drilling activities.
Futures for October delivery recently dropped by $1.27 to $46.35 a barrel on the New York Mercantile Exchange as Brent fell by $1.50 to $48.49 a barrel at Europe’s ICE Futures. Initially, Thursday had experienced a subtle surge of over 4% in oil prices, a factor that also formed the basis for the optimism.
The International Energy Agency had said that it expected that some changes and demand would finally usurp supply in the third quarter of this year. It meant that the highest global crude stockpiles would eventually fall, but the news, expectedly, sparked varied reactions.
Observers and analysts differed
While the US’s inventory drop may appear bullish and outrageous, analysts like Daniel Holder, a Schneider Electric’s commodity analyst, invariably know that there’s still some hope. He said that the markets should expect a swift turnaround and an impressive injection as the shutdown Wells returns with gusto.
The London-based firm, Energy Aspects, even added that the unexpected rise in the exports would help tame the next week’s anticipated upsurge in stock levels. The think-tank further believed that once the weather conditions were over, 400,000 barrels a day in the coming days would not be a problem.
But, Norbert Rücker, who is the head of commodities research at the Zurich-based bank, Julius Baer, said that work had already commenced at the stalled Gulf of Mexico. He particularly said that the tankers were probably queuing to offload and that the widely spoken about storage decrease would end soon with larger increases in the coming days.
In fact, Morgan Stanley’s analysts added that the projected Brent’s average of $51 a barrel from 2017 could be higher and beyond anyone’s reach mainly because the market looks more likely to remain oversupplied until then. Most of the banks have adapted to the low prices with most of them re-investing, and as long as the glut prevails, there won’t be a shocker.
However, it is widely upon OPEC and non-OPEC producers to meet and agree on the implementation of the canons to limit production. On Friday, Algeria’s oil minister reportedly said that two separate deals, perhaps pitting the two sides, will be required, although insiders know that clinching such deals is nearly impossible. If they all agree, although it is quite the opposite, sanity in prices will prevail, and the markets will automatically rebalance.
Meanwhile, the uncertainty continues
At the meantime, the doubt surrounding the Organization of the Petroleum Exporting Countries, Russia, and Saudi Arabia continued ahead of the informal meeting later this September. With the fact that any pact will have to overcome a couple of obstacles, most notably the stubborn Iran and the failure of the most recent meeting, the hopes of a fruitful seating are almost nil. Iran is refusing to back down on the proposed production limit until its production levels burgeon further.
From Algeria’s oil minister’s sentiments, and most notably Iran’s fiasco, there isn’t much of a surprise why traders aren’t big on the OPEC-Russia deal going through. Iran, knowing pretty well that the limits will stall her oil production levels that have been stagnant for the past three months, will, with little doubt, go with the flow. In fact, she’s currently struggling to raise her number of barrels to definite heights.
The final thoughts
It will be remembered that it is still Iran who derailed the previous attempt to cap production way back in April.
Aside from that, all is not lost for oil traders as the meeting looms. If Russia and OPEC will agree and the meeting in Algeria sails through, without a doubt, the wait will be worth the profits.