The crude oil prices retreated from their peak in the previous session, as concerns about economic growth have affected moods. Thus, Friday’s trading puts a pause on the three-month upward trend in crude oil trends, which received support from OPEC’s supply cuts and US sanctions against Iran and Venezuela.
The futures on US crude oil WTI depreciated by 0.12% to 59.91 USD per barrel, while only a day earlier they were traded at 60.39 USD per barrel, which is their highest value in 2019. The decrease in the Brent variety was minimal of only 0.03% to 67.84 USD per barrel. Brent reached a four-month high at 68.69 USD per barrel in the previous session.
Global economic growth remains a problem, undermining the efforts of OPEC to cut its production and balance global commodity market. The economic growth slowed in Asia, Europe, and North America, which is expected to affect fuel consumption.
The crude oil prices this year were backed by supply constraints on the part of the Organization of Petroleum Exporting Countries along with other non-cartel countries, including Russia. As Saudi Arabia shows no signs of hesitation under the pressure of the United States, OPEC is likely to extend its supply reduction agreement by the end of 2019, when the organization gathers in Vienna in June. Since the beginning of the year, US sanctions against Venezuela and Iran have also been a stimulating factor for oil prices.
Crude oil exports from Iran reached an average of just over 1 million barrels per day in March. For comparison, in March, exports from the Middle East were 1.3 million barrels per day. Before the US sanctions came into force last April, Iran exported 2.5 million barrels of oil per day.
Venezuelan oil production also declined amid the US sanctions and the political and economic crisis, sinking yields to less than 1 million barrels per day from more than 3 million barrels per day at the turn of the century.
A further rise in crude oil prices is now limited due to the increase in US production by 2018. the US oil yields rose by over 2 million barrels per day to a record 12.1 million barrels per day. This made the United States the world’s largest oil producer, ahead of Russia and Saudi Arabia. Growing US production has led to an increase in exports, which doubled over the past year to over 3 million barrels per day.
The International Energy Agency (IEA) estimated that the US would become a net exporter of crude oil by 2021.
Crude oil price analysis
The United States is no longer over-supplied with oil, which might sound good for the markets and balance it again. The bad news is that it may signal lower oil prices going forward.
An unexpected 9 million barrel crude oil withdrawal from storage this week moved comparative inventory below the 5-year average. That shifted stockpiles into negative territory at -5 million barrel for the first time since September 2018.
The bad news is that it crossed the 5-year average at about 55 USD per barrel. That crossing point is called the mid-cycle price, the clearing price of the marginal barrel needed to maintain adequate supply through the current supply-demand cycle.
The comparative inventory increased at about 70 USD per barrel prices through October 2018. These prices were inflated above the yield curve by market sentiment about the effect of US sanctions on Iran for oil supply. Once those fears were relieved, price moved downward to the December monthly average price of 50 USD per barrel. This move was in response to growing market sentiment that the world was over-supplied with oil.
Following the latest inventories data, there is no doubt that WTI prices will move higher in the coming weeks and possibly months. It is reasonable that sentiment may take prices back to the 70 USD range. The sentiment-based price excursions are part of the comparative inventory model.
When WTI prices were in the 70 USD area last September and October, suggesting that trend would probably not last and later lose ground. Moreover, the concerns for the global economy are getting bigger and traders are afraid that the reduction in oil consumption will form new holes on the market.