Daily Management Review

Oil reserves are running out despite shale mining growth


04/19/2018


On Wednesday, oil prices in the European market soared to three-year highs. Thus, the cost of North Sea oil Brent was fixed above the level of $ 73 per barrel. There is a bullish game against the background of destabilization of the situation in the Middle East, as well as data on the decline in oil reserves in the United States. The prices can be shifted only by reduction of geopolitical tensions, as well as by increase in fuel production in North America.



pixabay
pixabay
On Wednesday, the cost of oil rose above $ 73 per barrel after a one-week break. According to Reuters, during the bidding the value of the nearest contract for the supply of Brent crude oil reached $ 73.41 per barrel, the highest since November 28, 2014. In the spot market, the cost of North Sea oil for the first time since November 2014 rose above $ 74 per barrel. The multi-year maximum renewed the price of Russian Urals oil, which reached $ 71.1 per barrel. Strong growth in the price of oil has been held for the second week in a row, and during this time various grades of European oil have risen in price by 9-11%.

Investors are mainly concerned about a situation around Syria, after the US president promised to strike at government forces after the alleged chemical attack. Syria is not a major oil exporter, but escalation of the conflict in the region increases risks of declining volumes of oil production and supplies from the region in general. "Instability in the Middle East is supporting strong" bullish "sentiment and pushing quotes of oil up. In addition, reduction in production in Venezuela contributes to expectations of a decline in global oil reserves," says Norbert Rücker, head of commodity research at Julius Baer. 

This is evidenced by statistics on oil reserves in the United States. On Wednesday, the Energy Information Administration (EIA) reported that commercial stocks of raw materials in the country (excluding the strategic reserve) for the week ended April 13 fell by 1.07 million barrels, gasoline - by 2.97 million barrels. Analysts expected an increase in oil reserves of 625,000 barrels and a decrease in gasoline by 1.9 million barrels.

The continuing uncertainty about development of the situation in Syria will keep prices at a high level, market participants say. "The prices will be supported by risks associated with Washington's tough attitude towards Iran, as well as interruptions in production in Venezuela. All this will excessively level out such factors of price reduction as expected cessation of the process of reducing global reserves and the growth of shale mining in the United States," Norbert Rücker believes. Julius Baer estimates the likelihood of the White House imposing sanctions against Tehran in May at 50%.

However, in the event of a reduction in tensions in the Middle East, oil prices will be under pressure from rising production in the United States. According to the EIA, in January, the total oil production in the US broke the record of the 1970s, exceeding the mark of 10.2 million barrels per day. Last week, this figure reached 10.54 million barrels per day.

source: bloomberg.com






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