Oil prices in the recent weeks have been sluggish and generally falling due to reports of the US (and Nigeria and Libya) increasing oil production, thereby forcing OPEC and other major oil producers, including Russia, to reduce production to manage the current global glut in the oil market.
This trend took a surprise turn on Friday, when oil prices rose sharply by almost 3%, with Brent crude (the international benchmark for oil prices) ending the week at $52.72 a barrel and the US West Texas Intermediate (WTI) crude futures ended with $48.51 a barrel.
Multiple reasons led to this surprise turnaround at the end of the week. The main reason was reports about the Exxon Mobil’s refinery at Baytown, Texas (the second largest refinery in the US, producing 584,000 barrels of oil per day), shut down. Disruptions at a refinery usually cause the prices of gasoline and diesel to go up, thus causing a wider gap – called the ‘Crack Spread’ – between crude oil and fuel. This, in turn, led a rash of buying of crude, thus leading to a price rise.
News of a fire at the Royal Dutch Shell’s Deer Park, Texas refinery on Thursday also impacted the prices gain. Repairs are reported to take at least two weeks, which would lead to a reduced fuel output.
This was followed by a news update by Baker Hughes (the oilfield services firm) that 5 fewer oil rigs, falling from 768 to 763, were drilling for oil in the US as compared to last week. The EIA (Energy Information Administration) also said in its August 11 weekly report that crude oil inventories reduced by 8.95 million barrels (which was even lower than the expected 3.1 million barrels).
In addition, Tuesday will be the last day of trading with the current September West Texas Intermediate futures contract. The uncertainty of what the new contract may hold could also have contributed to the volatility of the market on Friday.
White House drama, with Stephen Bannon, Donald Trump’s chief strategist, resigning also cause a flutter. The political turmoil and uncertainty at the White House caused the dollar weaken, dropping 0.17% to 93.462.
All these events let to an easing of the concern of an oversupply of oil in the market, thereby leading to this price rise. However, despite the surprise surge on Friday, the New York oil market still closed at a 0.6% loss. Brent, on the ICE Futures Exchange in London, however, closed on a high at $52.72 with a 3.3% jump. The global benchmark rose by an overall 62 cents (about 1.2%) for the week thanks to the tightening of global supplies to rebalance the international oil glut.
The market opened on Monday with Brent crude, staying stable at $52.72 a barrel and WTI gaining 3 cents to $48.54 a barrel. Currently, the market remains stable.
The market will get fresh input on Tuesday and Wednesday from the world’s largest oil consumer – the US. The following are the reports expected to impact the market variability for the week:
- August 22nd, Tuesday: Weekly report by the American Petroleum Institute to be publish with regard to the US oil supplies
- August 23rd, Wednesday: EIA weekly report on the US stockpiles of oil and gasoline
- August 24th, Thursday: US Government to produce a weekly report on the natural gas supplies in store
- August 25th, Friday: Baker Hughes’ weekly oil rig count report.
Based on these reports, the end of the week could hold more surprises or could continue the trend that has held for the last few weeks.