Brent crude was trading at $46.37 a barrel at 0655 GMT, falling 38 cents from its last close. Brent, the global benchmark, rose $2.22, or 4.8%, to $48.47 a barrel on ICE Futures Europe.
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Overnight, oil prices surged almost 5%, buoyed by the latest report issued by the Organization of the Petroleum Exporting Countries’ which said that non-cartel production could drop by 800,000 barrels a day this year to 56.03 million barrels. Falling production from the USA and elsewhere comes at a time when OPEC is keeping output steady, which has allowed the cartel to capture its largest market share since 1975.
“After the UK’s referendum to leave the European Union, economic uncertainty has increased”, OPEC said in the report. After all, we need economic growth or at least ability for petroleum demand to stay strong, and quite frankly most of the “demand” picture out there has actually been due to various situations in oil-producing countries, not that consumers are demanding more or that factories are using more.
A Reuters poll estimated a drop in crude inventories of 2.3 million barrels for the week ended July 1.
Some analysts, however, believe the Brexit effect on oil is limited given that overall health of the oil markets is making strides.
“Supply/demand balances will transition to balance and then under-supply in the back half of 2016”, the bank said, but warned that prices may not fully react to under-supply until inventories draw to more “normal levels”.
Demand for crude produced by OPEC’s 14 members should average 33.0 million bpd in 2017, up 1.1 million bpd from 2016, OPEC predicted.
“We still are in a situation of more production than demand”.
The US government’s Energy Information Administration (EIA) will issue official inventory data on Wednesday.
Reports by Goldman Sachs and other investment firms such as Morgan Stanley also seems to indicate that demand for oil would increase at a greater pace next year and and could help stabilize prices between $50 and $60 a barrel, in line with the EIA predictions. The United States of America Texas Intermediate (WTI) crude CLO1 rose by 11 cents to about $45.52 a barrel.
Oil has traded between $44 and $52 a barrel in the last month after nearly doubling from a 12-year low in February amid supply disruptions from Canada to Nigeria and falling US output.
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“As such, the Middle East’s market share of global oil supplies rose to 35 percent, the highest since the late 1970s and an eloquent reminder that even when USA shale production does resume its growth, older producers will remain essential for oil markets”, the IEA said.
