Here is a scenario in which oil price may fall towards $40 mark
Crude oil has been on an upward trajectory, but we are seeing a gradual slowdown in buying, which points towards a correction in prices. The commodity touched its highest level since November, driven by turmoil in Libya along with ongoing production cuts pledged by Opec and its allies, and US sanctions against Iran and Venezuela.
However, renewed concerns over rising US inventory and production as well as concerns over a global economic slowdown helped put a lid on the prices.
On the demand front, Chinas state-owned energy giant Sinopec had resumed buying US oil, which was bullish for the market. The EIA reported that US crude exports to China had dried up from mid-2018 through recent weeks, after having averaged over 300,000 bpd in first half of last year.
This can ease concerns over slowdown in demand from China and can provide some support to prices. The WTI and Brent crude were underpinned by stronger-than-expected exports data from China. Exports in China rose 14.2 per cent in dollar terms last month, nearly double what economists expected. Oil prices came under pressure after the market grew concerned that a looming global economic slowdown would hit fuel consumption.
The IMF has lowered its global growth forecast for 2019 to 3.3 per cent, down 0.2 per cent from its estimation in January.
Meanwhile, risks to oil production from Libya continue to support prices. Libyas energy industry faces the worst threat since 2011 civil war, following the latest outbreak of fighting. Unless the problem is solved very quickly, the war will start affecting their production, and soon Libya wont be able to produce oil or gas.
The EIA reported that US crude inventories rose to their highest level since November 2017. Additionally, US crude output remained at a record 12.2 million barrels per day. However, gasoline stocks fell by a whopping 7.7 million barrels last week, which compensated that huge build in prices. API inventory report showed build in crude oil inventory of 4.1 million barrels coming in over expectations of 2.294-million-barrel build.
The IEA in its monthly report stated that increasing effectiveness of sanctions against Iran and Venezuela factors in tightening of oil market, together with production cuts by Opec countries that brought the output down by 2.2 mbpd from November to March.
Non-Opec producers cut output by 0.7 mbpd on a quarter-on-quarter basis in the first three months of 2019. There are consensus that Opec may raise oil output from July if Venezuelan and Iranian supply drops further and prices keep rallying, because extending production cuts with Russia and other allies could over tighten the market, as markets outlook remains unclear and much depends on how far Washington tightens the screw on Iran and Venezuela before Opecs June meeting.
The IEA even reported that Opec production fell 550,000 bpd. The IEA also said that US sanctions and power outages pushed member Venezuelas crude output to a long-term low of 870,000 bpd, even lower thanRead More – Source