Another jump in US crude stockpiles pushed the price of oil down to $61 a barrel on Thursday, going against indications that there was to be an imminent rise in global demand.
The United States government’s latest supply report shows that domestic inventories of oil rose last week to 434.1 million barrels, setting a record high for the seventh consecutive week.
Brent crude LCOc1 fell 40 cents to $61.24. US crude CLc1 fell 96 cents to $50.03. “At present, it would appear that Brent is bottoming out at $60 per barrel,” said Carsten Fritsch, analyst at Commerzbank. “The renewed sharp rise in U.S. crude oil stocks … points to a market that is still oversupplied.”
Burgeoning crude supplies in the US is further increasing the discount at which US crude is traded to Brent. The spread reached $11.81 on Thursday, the widest gap in over a year.
Brent collapsed in 2014, falling from the $115 high reached in June due to global oversupply. The decline worsened after OPEC (Organisation of the Petroleum Exporting Countries) chose to defend their market share against rival sources, rather than slash its own output.
The price has come back 35 percent from a six year low of $45.19 reached in January, supported by signs that lower prices are starting to negatively impact the investment in US and other supplies outside of OPEC.
Just two months into 2015 and oil prices have bounced back from the January low of just $45 a barrel, much faster than the Saudis had hoped after convincing OPEC members in November not to cut output to defend market share against shale.
Veteran Saudi Oil Minister ALi al-Naimi said that he was happy with the current state of the market, and that he saw oil demand growing in the future.
“The Saudis are saying – look, everything is happening the way it needs to happen. Others are cutting capex, production growth is slowing and low prices are stimulating demand,” said OPEC watcher Yasser Elguindi from economic consultants Medley Global Advisors.
“Of course, the main unknown is how resilient U.S. oil production will be. It may take more than just two quarters for markets to adjust to new patterns. It may take a year or two to sort out what is fair value for crude,” said Elguindi.
“Price may need to be at $60 to allow for a rational supply-demand trajectory. It doesn’t mean of course that we can’t temporarily go to $40 or $80 under certain circumstances,” he added.
Shale oil output in the US is not expected to start slowing in growth until the second half of 2015. This will put oil prices under even more pressure as global stockpiles continue to mount.
If the price of oil does stay around the $60 mark for an extended period this could be troublesome for Saudi Arabia, let alone the poorer oil-producing nations.
“It is interesting that Naimi says he doesn’t like to talk about oil because he wants calmness,” said Olivier Jakob from Petromatrix consultancy.
“After the OPEC meeting…we had the oil ministers of Saudi Arabia, Kuwait and the UAE going to the newswires to talk the market down. They did like to talk oil then and (Naimi’s current remarks) is probably another indication that they have reached their objective,” said Jakob.