In June, oil prices quickly jumped above $50 a barrel for the first time in almost a year.
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After three months of relative price stability, oil markets are dashing the cautious optimism that had taken hold among producers battered by a 30-month slump.
Oil prices slid to three-month lows after OPEC reported a rise in global crude stocks and a surprise jump in production from its biggest member, Saudi Arabia, despite output curbs by the group. Short sellers believe that a security’s price will decline, so it can be bought back later at a lower price to make a profit. “As of today, we see an upside risk to Russian oil output due to the lack of evidence of production cuts from the smaller producers” says Veronika Akulinitseva, Analyst at Rystad Energy.
Secondary sources had said Saudi output fell in February to 9.797-million barrels a day, but Riyadh told Opec it rose to 10.011-million barrels a day.
The oil price faces two major headwinds the FT reports.
Last week, the prices of oil plummeted amid growing concerns among investors that the increasing United States output would undermine OPEC’s efforts to reduce global oil glut.
For some market watchers, this could be Saudi Arabia’s tacit message to other oil producers that it is losing patience as it has been taking the lion share of the promised cut. OPEC members had agreed to cut their collective production to no more than 32.5 million barrels a day for six months starting in January.
“The market needs time for the full impact of the big supply cuts under the output reduction agreements to be felt”, the report said. Production also increase by 56,000 barrels a day to 9.088 million barrels. If oil does continue its downward trend, initial zone of support comes in around $44.09 per barrel, which is the 38.2% Fibonacci retracement of the upward price move from the $26.05 low in February 2016 to the $55.24 high in January 2017.
U.S. petrol and distillate inventories drew more than expected, the data also showed.
No let up in the downward pressure on global oil prices overnight Tuesday with another round of losses. Despite the slow growth, the figures are still a lot higher of what’s a year ago, signaling a further increase in the demand levels of the commodity in the world’s largest user of energy.
The Energy Information Administration (EIA) expects US monthly average regular gasoline retail prices to increase from $2.30 per gallon in February 2017 to $2.51 per gallon in July before falling to $2.24 per gallon by December.
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The anticipation of a rebalancing of global supply and demand had been so fiercely ingrained into the minds of traders – and so quickly – that the market was continuously looking past relatively poor current conditions.
