With the US oil inventory still exceeding its five-year average by 100 million barrels, oil posted a loss for the fourth consecutive week, the longest period of consecutive weekly losses in two years. Even as OPEC members agreed to cut supply, the exemption of Libya and the continued surplus in the United States serve as the principal reasons for the extended period of weekly losses for oil prices.
Fueling the growing concern is the fact that the US surplus has shown no sign of waning, meaning that non-OPEC output alone will meet demand growth for 2018. It is for this reason that the string of weekly losses continued and oil fell to its lowest close since the beginning of the year. With inventory levels so high, it is a simple fact of the matter that this trend remains likely to continue until the fundamentals change in a way that alters the current trading range.
In New York, futures did enjoy a 0.6 percent increase but are still down 2.4 percent on the week. Analysts, including Michael Dei-Michei, the head of research with JBC Energy GmbH, do not see any sort of “bullish twist” in the most recent data made available by the US. Simply put, crude production is up and demand is down even with the onset of the summer driving season in the United States. As a result — which was dutifully noted by Dei-Michei — “U.S. oil stocks have not drawn for two weeks.”
Compounding the issue is the fact that the political upheaval and violent attacks that have plagued Libya and Nigeria are no longer wreaking havoc on oil production in those countries. Due to these countries’ newfound stability, oil production has substantially increased in just a short period of time: In Libya alone, oil production is expected to reach 900,000 barrels in a matter of days, according to Mustafa Sanalla, the chairman of National Oil Co.
Global supply growth will continue to be influenced by North America, as the fact that Canada’s oil sands expect a rapid increase in production over the next 36 months will make Canada the second-largest contributor to worldwide supply growth, trailing only the United States. Given these factors, it doesn’t appear likely that stockpiles will drop anytime soon, and certainly not within the next six months. According to a report from Bank of America Merrill Lynch, the expectation is that oil will be trading at $47 a barrel before the close of the second quarter.