Crude oil prices are rising on Friday, fluctuating around their six-week high, after the US companies in the Gulf of Mexico halted more than half of their production due to a tropical storm. At the same time, tensions in the Middle East continue to affect the trade of the raw material.
The futures on US crude oil WTI appreciated by 0.66% to 60.60 USD per barrel, while the Brent variety recorded a price increase of 0.74% to 67.01 USD per barrel.
On Thursday, the US companies in the Gulf of Mexico stopped production of more than 1 million barrels per day or 53% of total production in the region due to the tropical storm Barry, which is expected to hit the coast on Saturday and become a hurricane of first category with a wind speed of 119 km/h.
Meanwhile, it has become clear that crude oil inventories in the US are down for the fourth week in a row by 9.5 million barrels per day.
According to the analysts, the big drop in US crude oil stockpiles and geopolitical risks will keep Brent and WTI at their current levels. As the geopolitical risks associated with Iran are likely to continue to exist, it will support the WTI to remain above 60 USD per barrel, while the Brent variety will hold over 65 USD per barrel.
The alleged attempt of Iran to block a British tanker has raised tensions in the Middle East since the attacks on tankers and the shooting of a US drone in June.
At the same time, the Organization of Petroleum Exporting Countries said in its monthly report that the world will need 29.7 million barrels of oil per day from the cartel in 2020, down by 1.34 million barrels compared to this year.
US oil inventories
The US crude oil inventories decreased by 9.5 million barrels from the previous week during the week ending July 5, the US Energy Information Administration (EIA) said in a report on Wednesday. At 459.0 million barrels, US crude oil inventories were about 4% above the five-year average for this time of year.
According to the EIA, total motor gasoline inventories decreased by 1.5 million barrels last week and are at the five-year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week.
Distillate fuel inventories increased by 3.7 million barrels last week and were about 5 percent below the five-year average for this time of year.
Propane/propylene inventories decreased by 0.2 million barrels last week and were about 7 percent above the five-year average for this time of year. Total commercial petroleum inventories decreased last week by 3.8 million barrels last week.
OPEC monthly report
The Organization of Petroleum Exporting Countries (OPEC) predicts global demand for the cartel’s crude oil to shrink next year as its competitors will pump more.
The OPEC’s expectations are a signal that the market will return to surplus despite the supply cutback agreement.
According to the OPEC report, the global markets will need 29.27 million barrels per day from the 14 member states of the cartel next year, which is 1.34 million barrels per day less than this year.
The drop in demand for OPEC’s oil highlights a sustainable price support policy by limiting supplies at the expense of shale oil production and supplies from other countries. This allows US President Donald Trump to maintain sanctions against members of OPEC Iran and Venezuela.
“Production in the US is expected to continue to grow, as new pipelines will allow a larger quantity to be transported from the Gulf of Mexico”, said OPEC.
The report also predicts that global demand for oil will grow at the same rate next year as well as in that the world economy will also maintain its growth despite the slowdown in the US and China.
“The forecast for 2020 suggests that additional risks will not be realized, especially with regard to trade issues”, says OPEC report. They indicate that Brexit represents an additional risk as well as the continuing delays in production.
The organization said oil production in June fell by 68,000 barrels per day to 29.83 million barrels per day, which is above the forecast for demand for 2020. This indicates that there will be a surplus of over 500,000 barrels per day next year if OPEC and other manufacturers continue to pump the same volume as before.
US oil rigs
The US oil and natural gas rig count dropped by 17 week-on-week to 1,040, as activity continued its seesaw trajectory following a national holiday.
Rigs directed to oil saw an even bigger drop – 20 to 828 – while the number of gas rigs rose by four to 209.
A one rig decrease was posted for rigs not classified as either oil or gas.
Despite the overall drop in the rig count, the tally of private operators rose, according to Platts Analytics. That indicates that the privates are going ahead with the mid-year drilling budgets, helped by the recent uptick in crude prices that finally topped 60 USD per barrel in recent days – although the rig increase was more likely due to the comfort zone that locked-in hedging levels provide.
Although the rig count has seen a zigzag pattern for the better part of a year that has gradually seen its numbers sift down from a mid-November 2018 high of 1,233, the count has been rangebound between a low of 1,040 – a figure is also seen three weeks ago – and the mid-1,060s for nearly two months.
Last week, for example, the rig count rose by six to 1,057. The week before, it had jumped by 11 to 1,051, while dropping 13 to 1,040 the week before that.