Crude oil prices have remained under pressure as concerns of weakening global economy as the demand worries overpowered the Middle East tensions and the decision to rollover the output cute for the next nine months by OPEC.
Prices rallied after Saudi Arabia and Russia essentially spoiled the suspense when Russian President Putin and Saudi Prince gave their support to extension of the cuts at a meeting at the G20 summit. The formal extension appeared to leave room for increasingly bearish concerns around global economic growth to take a more direct part in guiding prices.
On the data front, a second consecutive decline in new factory orders in US in May exacerbated concerns over the pace of the economy. In Germany, Europes biggest economy, a much larger-than-expected drop in industrial orders also stoked fears of a possible recession coming. Decelerating GDP growth out of China, the EU and US continued to weigh on oil demand and prices.
In Europe, ECB policymakers recently concluded a symposium in Sintra, Portugal where central bank President Mario Draghi alluded to possible future rates cuts and re-introduction of QE. Slowing economic growth and inflationary pressures in Europe have been lagging while expectations for price growth remain unfavorable.
Data from EIA showed an unimpressed fall of 1.1 Mbpd against the expectations for a drawdown of 3.7 Mbpd. At 468.5 million barrels, US crude oil inventories were about 5% above the five-year average for this time of year. Crude stocks at the Cushing, Oklahoma rose by 652,000 barrels. Refinery crude runs fell by 47,000 barrels per day. The total motor gasoline inventories decreased by 1.6Mpd last week and are at the five year average for this time of year. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories increased by 1.4 million barrels and were about 6% below the five-year average for this time of year. Meanwhile, data from U.S. rig count showed that number of active U.S. rigs drilling for oil fell by 5 to 788 this week. That followed two consecutive weeks of increases.
The United States has increased oil production in recent years, putting pressure on global prices and squeezing OPEC. US oil production hit a record 12 Mbpd in April. Russia and Saudi Arabia fill out the top three positions, with approximately 11 million and 10 Mbpd.
OPEC and Middle East tensions
The extension of the OPEC+ supply pact has long been baked into sentiment hence the muted price reaction. Moreover, as much as it may seem like a victory for Opec alliance, their decision to maintain supply curbs reaffirms that the oil market remains oversupplied and has yet to reach a balance. However, Opec-led cuts are more likely to put a floor under prices rather than breathing fresh life into upward buying pressures. The big problem here is that ongoing pledges to cut supply are ultimately a sign of weakness in the oil market, not strength.
OPEC oil production hit a new five-year low in June as a rise in Saudi supply did not offset losses in Iran and Venezuela to below 30 million bpd in June, down by 170,000 bpd from May and lowest monthly output since April 2014, as higher Saudi oil sRead More – Source