The sell-off on the oil market deepened

06.06.2019 09:10|Daniel Kostecki

The WTI oil were continuing to fall from the second half of April, reaching the lowest level since January yesterday. The Wednesday oil price drop, which led to a fall in crude oil prices below USD 51, seems to be caused by an increase in crude oil inventories in the United States, but this may not be the only reason.

This week, both API data (American Petroleum Institute) and EIA (Energy Information Administration) data have pointed to an increase in US oil stocks. According to API, inventories increased by 3.5 million barrels last week, and according to EIA data, by 6.77 million barrels. The difference in the data is due to from a different number of surveyed entities, as well as research methodology.

Still worrying about the economic slowdown around the world due to the trade war, including in the United States, means that with rising oil inventories, demand may decrease, which may negatively affect the price. As a result, the price of the WTI crude oil barrel dropped by 24 percent in about a month and a half.

Meanwhile, the demand factor for the market, like cutting production, seems not to be so sure. A year ago, foundations for the OPEC + agreement and a reduction in production were built in St. Petersburg in Russia. The country that cut the most and the fastest was Saudi Arabia, while Russia, in turn, refrained from limiting production as soon as it could. This week, again in St. Petersburg, the founders of that agreement will meet - energy ministers Alexander Novak and Khalid Al-Falih.

It seems, however, that both countries currently have divergent interests and reaching an agreement may not be so easy. At the end of June, the production restrictions expire, and the Saudis are eager to extend them, which in turn may not be fully in the interest of Russia, which has been adjusting production cuts slowly. The meeting, as well as the July OPEC meeting, will be crucial for the demand side in the oil market.

 

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

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