Crude futures fell today as investors took gains after oil prices surged almost five per cent in the previous session, partly on the back of a forecast increase in demand next year.
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Saudi Arabia helped boost OPEC production in June, and the oil cartel said uncertainty around the U.K.’s decision to leave the European Union will likely hit oil demand in Europe.
“Oil prices continued their period of weakness as investors remained concerned that increasing exploration activity in the USA would see US production and inventories remain high”, ANZ bank said on Tuesday.
The IEA, which coordinates the energy policies of industrial nations, said it had revised up its forecasts of 2016 and 2017 global oil demand growth by 0.1 million barrels per day from last month to 1.4 million and 1.3 million bpd respectively.
“Despite the regular upwards revisions to demand that we have seen in recent reports there are signs that momentum is easing; and, although stocks are close to topping out, they are at such elevated levels, especially for products”, the IEA said in its closely watched monthly oil-market report. It expects demand for its crude in 2017 to average 32.98 million bpd, suggesting a supply deficit if OPEC keeps output steady.
The American Petroleum Institute reported that US crude supplies rose by a surprise 2.2 million barrels for the week ended July 8, according to sources.
OPEC was upbeat about 2017 being the year when excess oil inventories will fall.
The global consumption of oil and other liquid hydrocarbons totaled 93.85 million barrels per day in 2015 and 92.45 million barrels per day in 2014, according to the EIA. If OPEC is unable to boost production – which could be a hard task given some declines expected in places like Iraq and Venezuela, as well as supply disruptions in Nigeria and Libya – inventories will be drawn down.
Of course, global inventories matter just as much, and with falling production in the shale patch, storage levels should continue to come down in the U.S.as well. A higher count for US oil drilling rigs and fewer bullish bets by hedge funds had also weighed on the market.
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The pace of Tuesday’s rally stunned some market participants. “The sharper move up caught everyone by surprise as there’s probably short covering adding on to the technical buyback”, an unnamed crude futures broker told Reuters. Non-OPEC supplies are set to decline by 0.9 mb/d in 2016, to 56.5 mb/d, before rising 0.2 mb/d in 2017.
