The price of US oil has fallen to a level not seen since 1999, as demand dries up and storage runs out.

The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, dropped 19.3% to $14.74 a barrel on Monday.

The oil market has come under intense pressure during the coronavirus pandemic with a huge slump in demand.

US storage facilities are now struggling to cope with the glut of oil, weakening prices further.

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The oil industry has been struggling with both tumbling demand and in-fighting among producers about reducing output.

Earlier this month, Opec members and its allies finally agreed to a record deal to slash global output by about 10%. The deal was the largest cut in oil production ever to have been agreed upon.

But some analysts said the cuts were not big enough to make a difference.

“It hasn’t taken long for the market to recognize that the Opec+ deal will not, in its present form, be enough to balance oil markets,” said Stephen Innes, chief global market strategist at Axicorp.

The leading exporters – Opec and allies such as Russia – have already agreed to cut production by a record amount.

In the United States and elsewhere, oil-producing businesses have made commercial decisions to cut output. But still, the world has more crude oil than it can use.

And it’s not just about whether we can use it. It’s also about whether we can store it until the lockdowns are eased enough to generate some additional demand for oil products.

Capacity is filling fast on land and at sea. As that process continues it’s likely to bear down further on prices.

It will take a recovery in demand to turn the market around and that will depend on how the health crisis unfolds.

There will be further supply cuts as private sector producers respond to the low prices, but it’s hard to see that being on a sufficient scale to have a fundamental impact on the market.

Meanwhile, concern continues to mount that storage facilities in the US will run out of capacity, with stockpiles at Cushing, the main delivery point in the US for oil, rising almost 50% since the start of March, according to ANZ Bank. “We hold some hope for a recovery later this year,” the bank said in its research note.

Mr. Innes said: “It’s a dump at all cost as no one, and I mean no one, wants delivery of oil with Cushing storage facilities filling by the minute.”

The drop was also driven by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire on Tuesday. Traders will be keen to offload those holdings to avoid having to take delivery of the oil and incurring storage costs.

Brent oil, the benchmark used by Europe and the rest of the world, was also weaker, down 2.6% to $27.35 a barrel.

Source: https://www.bbc.com/news/business-52350082

The post US oil prices drop to 21-year low as demand dries up first appeared on Garner Ted Armstrong Evangelistic Association.

“Oil prices are finely balanced in today’s trading session. Ongoing protests in Iran, together with recent detention of several princes in Saudi Arabia, have reinvigorated geopolitical concerns,” Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.

“However, prospects for further increases in US oil production amid recent improvements seen in oil prices continue to promote bearish sentiment,” Mr Kumar said.

Brent futures gained 16 cents, or 0.2 per cent, to settle at US$67.78 a barrel, while US West Texas Intermediate (WTI) crude rose 29 cents, or 0.5 per cent, to settle at US$61.73.

Last week, both contracts rose to their highest since May 2015 with Brent at US$68.27 and WTI at US$62.21.

US production C-OUT-T-EIA is expected soon to rise above 10 million barrels per day, largely thanks to soaring output from shale drillers, according to federal energy data.

Only Russia and Saudi Arabia produce more.

“The US oil price is now into a range that is anticipated to attract increased shale oil production,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.

“Traders may decide that discretion is the better part of valour while markets wait on evidence of what happens to the rig count and production levels over the next couple of months,” Mr Spooner said.

US drillers reduced the number of oil rigs operating by five in the week to Jan 5, the first decline in three weeks, according to a report by energy services firm Baker Hughes on Friday.

Rising US production is the main factor countering output cuts led by the Middle East-dominated Organization of the Petroleum Exporting Countries and by Russia, which began in January 2017 and are set to last through 2018.

A senior Opec source from a major Middle Eastern oil producer said Opec was monitoring unrest in Iran, as well as Venezuela’s economic crisis, but will boost output only if there are significant and sustained production disruptions from those countries.

Stephen Innes, head of trading for Asia/Pacific at futures brokerage Oanda in Singapore, said “the Opec versus shale debate will rage” this year, being a key price-driving factor.

However, Mr Innes added that Middle East turmoil would remain a key focus for oil markets and had the potential to “send oil prices rocketing higher.”

REUTERS

Source: http://www.businesstimes.com.sg/energy-commodities/oil-mostly-flat-as-rising-us-output-offsets-opec-worries

The post Oil mostly flat as rising US output offsets Opec worries first appeared on Garner Ted Armstrong Evangelistic Association.