Oil has reminded us that what goes up can come down as the latest slide in global oil price futures continued overnight with new two month lows being reached at the close of trading.
The prices of local oil majors, Woodside and Santos will come under pressure today despite the small gains in yesterday’s roaring market. Despite last week’s 7% slide in oil prices, shares in Woodside and Santos both made small gains.
Overnight oil prices extended their falls from their most recent highs around $US51 to $US52 a barrel to well over 12%.
Oil futures lost more ground on after a survey revealed that crude production from members of the Organisation of the Petroleum Exporting Countries has climbed to a nearly eight-year high – with output from Canada, Libya and Nigeria all recovering, while a recent slowdown in Iraqi shipments seems to have been ended.
The report exacerbates concerns that global output is set to climb even the recent supply disruptions ease and refineries around the world churn out more oil products (petrol, diesel, jet fuel) than the market needs.
A survey from S&P Global Platts revealed a 300,000 barrel a day jump in OPEC production in June, to 32.73 million barrels a day.
As a result August West Texas Intermediate crud lost 51 cents, or 1.1%, to $US44.90 a barrel in New York, while September Brent crude futures fell 48 cents, or 1%, at $US46.28 a barrel in London.
They were two month lows for prices.
WTI and Brent crude prices slumped more than 7% last week on growing fears of over production.
Marketwatch.com said New York-based bank Morgan Stanley said in a note that refiners across the world are overproducing petroleum products. If the products market becomes oversupplied, it could ripple back to lessen crude demand this week which is “not helpful for oil balances and prices.”
A big factor though is the rebound in the number of US oil rigs at work – that’s up 35 (to 351) in the past six weeks – a rise of more than 10%, from the most recent low of 316 rigs.
The Baker Hughes US oil-rig count is is seen by investors as a proxy for activity in the sector. After peaking at 1,609 in October 2014, low oil prices put a downward pressure and the rig count fell sharply. Now its on the way back up – if that stops in the next couple of weeks, some pressure will come off prices.
But if the count continues for another one to two months, then prices could quite easily test $US40 a barrel, with the return to stable production in some producing countries (such as Canada and Nigeria) and the continuing build up of stocks. And the lingering fears that Brexit will damage demand won’t go away either.
