The weekly U.S. crude oil production fell for the tenth consecutive week, on April 1, 2016. The oil output fell by 7.2 percent from the peak level of 9.7 million barrels per day (MMbdp), being the lowest levels since November 14, 2014.
This affected the oil prices in the U.S., jumping 6 percent on Friday, raising by the expectation that U.S. production will continue to decline. The U.S oil fell 1.3 percent to $37.26 per barrel. The gasoline stock increased 1.4 million barrels in the last, after six weeks of decline, according to the Economic Calendar.
Brent crude declined 41 percent to $39.43 per barrel, and the West Texas Intermediate (WTI) was floating around $40 a barrel. But on the morning of April 8, 2016, crude oil from WTI was found higher, by 6.04 percent to $34.51 per barrel, and Brent crude was found up by 5.05 percent to $41.42 per barrel. The Whiting Petroleum Corporation (WLL), another petroleum and natural gas exploration and production company, was gaining, this morning, by 8.55 percent to $9.65.
Oil traders and investors consider that the main reason why the crude inventories dropped to a large extent was because of lower imports and a delayed restart from Trans Canada Corp’s Keystone pipeline, which has the potential to pump 590,000 barrels per day.
On the other hand, data is showing that the U.S. oil production is falling and, according to Phil Flynn, a market analyst at Price Futures Group in Chicago, is generating the expectations that U.S. producers will not be able to quickly rebuild production even if crude continues to climb. The unexpected fail in the future of oil production caused damaged to several fragile shale firms, and banks are already stating that, most likely, will not be able to increase the energy loans, even if prices recover.
The U.S. Federal Reserve Chairwoman Janet Yellen, says she is worried that the U.S., the world’s biggest oil consumer, is heading back toward recession, even though earlier this year the oil prices were pushed to the lowest in decades, caused by economic growth concerns.
The ‘Doha Deal’, and optimistic trade
A meeting between major oil producing countries is planned to take place on April 17, 2016, in Doha, Qatar. This will not be an official OPEC (Organization of the Petroleum Exporting Countries) meeting because both OPEC and non-OPEC countries are going to be involved and will discuss possible solutions for the problem.
What is being set to discuss is a production freeze prices. This proposal to create a deal to freeze production was a temporary relief for two months, but some people are still worried that an agreement might not be reached. Others think the meeting will lead to positive results.
Russia is proposing a cap on the oil production, not on export, looking to expand its oil trades to Europe over the upcoming months. On the other hand, Iran refuses to this proposal and says it will keep producing until the production reaches standard levels. This country is trying to boost its oil productions to around 2.5 million barrels this year, having hopes of producing 4 million barrels in 2017.
However, Saudi Arabia, one of the original initiators of the pact and another main character in this deal, says that it will back out of the plan if Iran decides not to be on board. These three countries will be the main keys to reaching a solution during the trade.
“We believe the current oil price is unsustainable and expect a fundamental price recovery when markets move into better balance in mid- to late- the second part of the year,” says an analyst at Jefferies, Jason Gammel. He also added that “the recovery could be protracted.”
The unexpected drop in American crude inventories does not stop the global oil demand, which continues to increase and is making the investors and oil traders to hope for a stronger oil price in the future.
Source: Economic Calendar