Why Oil Prices Will Fall In The Near Future?

16 March, 2018, 10:22 | Author: Terri Saunders
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Global oil demand is expected to pick up more quickly this year, but supply is still growing at a faster pace leading to a rise in inventories in the first quarter of 2018, the International Energy Agency (IEA) said on Thursday.

The West Texas Intermediate (WTI) for April delivery was up 0.25 US dollar to settle at 60.96 dollars a barrel on the New York Mercantile Exchange, while Brent crude for May delivery added 0.25 dollar to close at 64.89 dollars a barrel on the London ICE Futures Exchange.

Robust demand for oil should help offset increasing supply to keep the oil market roughly in balance, the agency said.

"According to the OPEC report, demand for OPEC's oil must be 33 million barrels per day for the rest of the year to get rid of any remaining oversupply", Commerzbank strategist Carsten Fritsch said. Gasoline stockpiles dropped by 6.3 million barrels and diesel stockpiles fell by 4.4 million barrels - outpacing the drops analysts had been expecting. The US based Energy Information Administration (EIA) had earlier reported a 5- million barrel surge in crude oil inventories for the week ending March 9, 2018, which was nearly double of what analysts had predicted. This is marginally higher than last month's assessment.

Analysts said oil may also get some support from seasonal demand, while providing at least temporary support was the unexpected replacement this week of U.S. secretary of state Rex Tillerson by Mike Pompeo, director of the Central Intelligence Agency.

The month of February 2018 witnessed a weakening trend in crude oil prices for all main benchmark crudes around the world, compared with the January 2018 closings.

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The looming change in USA diplomacy also complicates the future path of the OPEC- and Russia-led supply cut agreement.

"Prices in the upper half of the oil price-band will encourage increased supply as U.S. production grows and countries reduce compliance with their production quotas", said Terry Marshall, a Moody's Senior Vice President. OPEC trimmed its 2018 demand forecast for its own crude by 250,000 bpd to 32.61 million bpd, a fourth consecutive decline. The dire situation in Venezuela's oil sector may exacerbate a worldwide supply deficit expected later this year, the Paris-based IEA said.

He said, "This is due mainly to the mistaken assumption that the pre-2014 bullish market could hold much longer as the world seemed to be in the threshold of post peak-oil era".

According to OPEC, the United States will be the biggest driver for supply growth with an average increase of 1.46 million barrels per day.

Indeed, the recognition that US shale is going to grow more than expected likely means that OPEC realizes it will need to keep the cuts in place longer than it had planned.

China's factory output and investment growth unexpectedly accelerated in the first two months of the year amid robust global demand.

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