Oil prices dropped for a second straight day on Wednesday, as worries over the global economy after the Brexit vote fueled concerns about energy demand.
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Oil prices are up nearly 80 per cent from 12-year lows of around $27 for Brent and $26 for USA crude in the first quarter.
Traders said that a report of a reduction in available US crude oil stockpiles had been the main overnight price driver.
Nigeria, Africa’s biggest oil producer, pumped an average 1.53 million barrels a day in June after restoring production facilities damaged by rebel attacks.
A stronger dollar, however, makes oil imports more expensive for holders of other currencies and is generally seen as bearish for demand.
Along with a weaker USA dollar, falling United States production, short covering from speculators and improved sentiment towards the outlook for the Chinese economy, Taylor suggests that other one-off factors such as supply disruptions and stronger-than-expected demand growth helped to tighten crude markets, further bolstering gains.
“The increase in OPEC production threatens to postpone the anticipated rebalancing of the global market”, said Tim Evans, energy futures specialist at Citi Futures in NY.
Contango, the structure where prices for delivery today are lower than those in future months, is shrinking, a sign that stockpiles are plentiful. The global benchmark crude traded at a 68-cent premium to WTI for the same month.
Taylor’s assessment on where the Brent will finish 2016 is mirrored by financial markets with the December 2016 futures contract on the ICE now trading at US$49.30 per barrel.
Brexit also raised the degree of volatility in the futures market. “OPEC production estimates are making the rounds and they’re showing a rise in Nigerian production, which is negative for the oil market. I’m still looking for prices to probably trend higher over the next year”.
The crack for gasoline delivered in October has fallen from a peak of nearly 30 cents per gallon on May 23 to less than 22 cents on July 5 (tmsnrt.rs/29hA8wU).
The news comes as the Organization of the Petroleum Exporting Countries (OPEC) is said to have increased crude production last month.
Several tankers carrying gasoline could not be unloaded at the Port of NY and were forced to anchor offshore or continue on to the Gulf Coast, Commerzbank AG said in a note Tuesday.
Investors also awaited data on US crude inventories, delayed due to Monday’s Independence Day holiday.
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Crude production has slipped by 55,000 bpd to 8.62 million, the lowest since September 2014, according to EIA data.
