Crude oil prices are down on Wednesday as the latest data showed an increase in crude oil inventories in the United States. At the same time, Saudi Arabia has promised to keep the markets balanced.
The futures on US crude oil WTI depreciated by 1% to 62.50 USD per barrel, while the Brent variety fell by 0.72% to 71.66 USD per barrel.
Analysts say, however, oil markets remain tightened in terms of supply constraints by the Organization of Petroleum Exporting Countries, and against the backdrop of the escalation of political tensions in the Middle East.
For its part, Saudi Arabia is committed to balancing and maintaining a stable oil market.
Bank of America Merrill Lynch analyzed that crude oil production from OPEC and its allies dropped by 2.3 million barrels per day between November 2018 and April 2019. This removed from the markets more than 400 million barrels of oil and helped to boost crude oil prices by one third since the beginning of the year.
The US investment bank also explained that part of the effect of shrinking production was offset by the slowdown in global demand for oil. However, Bank of America Merrill Lynch believes that Brent’s prices will range between 75 USD and 80 USD per barrel in the second half of this year due to tighter supply and steady demand.
Meanwhile, in the focus of the markets remains the tensions between the US and Iran.
US crude oil inventories
The American Petroleum Institute (API) said on Tuesday that the US oil stockpiles rose by 2.4 million barrels to 480.2 million barrels. For comparison, analysts’ expectations were for decline by 599,000 barrels.
The API also reportedly showed a stockpile increase of 350,000 barrels in gasoline, but distillate supplies fell by 237,000 million barrels. Inventory data from the Energy Information Administration will be released Wednesday.
Last week, the API reported a surprise build in crude oil inventories of 8.6 million barrels. A day later, the EIA estimated that US inventories had increased by 5.4 million barrels.
Including this week’s data, the net build is now 31.92 million barrels for the 21-week reporting period so far this year, using API data.
The official data from the Energy Information Administration is expected later on Wednesday. The EIA data are expected to show crude inventories declined by 2 million barrels last week, according to a survey of analysts conducted by S&P Global Platts. It also forecast a supply climb of 1 million barrels for gasoline and a decline of 1 million barrels for distillates.
What can be expected by OPEC+ in the summer?
The Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, consider increasing production in the second half of 2019 after the oil market tightened significantly amid a series of serious breaks.
The OPEC+ representatives met in Jeddah within the last weekend to assess the oil market and discuss the cartel plans for the rest of the year. The event was held with a focus on the forthcoming meeting of the leaders of the organization, which will be held in June in Vienna. That is where OPEC+ will confirm its plans.
In Jeddah, however, the cartel and its partners looked at several scenarios. Saudi Arabia and other OPEC representatives want to keep the cuts in yields while Russia prefers to increase production versus current quantities.
Riyadh and Moscow are considering two options.
The first option includes a reduction in agreed cuts of 1.2 million barrels per day to 0.9 million barrels per day.
In the second case, attention is drawn to the unintended shocks in the yields of Iran and Venezuela, which will be offset by more barrels from other countries. This plan will lead to a production increase of about 0.8 million barrels per day.
But while the second option could lead to a greater market outpouring, it will still officially adhere to the agreed 1.2 million barrels per day cut, something OPEC does not want to change.
Senior Gulf officials dropped the proposal to reduce the size of the restrictions from 1.2 million to 0.9 million barrels per day.
In a more in-depth look at the situation, it becomes clear that the differences between Russia and Saudi Arabia seem logical.
The Kingdom’s preferences concern redundancies that would exceed their current size, but if a change is to be made, Riyadh would be inclined to reduce unplanned production constraints.
On the other hand, Russia wants the redundancies to be reduced to 0.9 million barrels per day, which will give it more room to increase production.
Surely the cartel has not yet decided yet.
Oil prices have risen by more than 30% since the beginning of the year, which is evidence that the cuts have managed to tighten the market. But there are two elephants in the room: interruptions in supply and the likelihood of economic slowdown.
The US sanctions against Iran and Venezuela have led to serious disturbances in these countries, and military conflict is not ruled out. The likelihood of rising prices is real.
But the trade war between the United States and China may worsen the economic slowdown already underway.
According to Russian Energy Minister Alexander Novak, if OPEC sees growth in demand, the cartel is ready to revise and soften production parameters, leading to partial recovery of the yield.