Aug. 7 (UPI) — With demand pressures from seasonal factors starting to fade, crude oil prices lost ground early Monday as questions about balance start to resurface.
Crude oil prices broke out of the mid-$40 range in mid June as demand factors started to show up as declining oil and gasoline inventories. Brent, the global benchmark for the price of oil, and West Texas Intermediate, the U.S. benchmark, both broke through the $50 mark late in the second quarter, but WTI lost grip on the psychological threshold in recent sessions.
Efforts by the Organization of Petroleum Exporting Countries to balance the market through coordinated production declines have been offset at times by a U.S. shale oil sector that’s more resilient to oil below $100 per barrel than expected. Lower oil prices have curbed spending on exploration and production, a trend gauged loosely by rig counts. The U.S. rig count last week was down 4 from the previous week, but still up 490 from the same time last year.
The U.S. government reported crude oil inventories declined 1.5 million barrels, smaller than expected. Gasoline inventories, which offer an indication of consumer appetites, fell 2.5 million barrels and are more than 4 percent lower than last year. The official summer travel season in the United States, the world’s largest economy, ends next month, however, and consumer pressures should ease.
In Europe, the industrial output from Germany contracted for the first time this year. Last week, however, the European Commission reported Wednesday that optimism in the regional economy has recovered from the shock of the British divorce from the European Union.
On the production side, a report last week from S&P Global Platts found the OPEC effort is challenged by production from Libya and Nigeria, which are exempt from the agreement because of national security issues.
“This is the issue OPEC has to address in order to have a realistic chance to deplete OECD oil inventories to the declared target of the five-year average,” Tamas Varga, an analyst with London oil broker PVM, said in an emailed newsletter. “Based on current supply-demand estimates and on projected OPEC output, this target will not be achieved this year.”
The price for Brent is about 20 percent higher than this time last year, but still about 50 percent lower than the price just three years ago. In statements on second quarter earnings, BP CEO Bob Dudley said the corporate focus was on a “new oil price environment” that required discipline.
“While underlying data shows sign of improving, the market is probably still not yet ready to move higher,” Ole Hanson, the head of commodity strategy at Saxo Bank, told UPI. “On that basis I see limited upside from here and maintain my third quarter outlook of Brent reaching but failing to make it much higher than $55 per barrel.”