Oil prices mixed, IEA official says price volatility set to return

Oil prices were mixed in trading on Monday on expectations of higher US crude stocks.

IEA official says not impossible to see a return to high oil prices

On Monday, US crude oil prices hovered around $50 per barrel even though traders were bracing for reports of a build up of crude stocks expected later this week due to a slow return to operations at a number of US Gulf Coast refineries following Hurricane Harvey.

US WTI settled up 2 cents to $49.91/barrel by session close and benchmark Brent was dropped by 14 cents to $55.48/barrel. Last Thursday, WTI hit a near four-month high of $50.50/barrel.

“They’re still working out the aftermath of the hurricanes,” John Kilduff, a partner at Again Capital Management told Reuters. “The big thing about this week is that the inventory reports are going to be bearish for crude.”

Kilduff added that even though refineries are restarting operations, crude imports arriving at reopened ports will likely drive up US crude stockpiles.

Reuters reports Australia’s ANZ Bank said in a note that the US Gulf Coast refining operation restarts are occurring “as signs emerge of stalling growth in the U.S. shale industry. The number of rigs drilling for oil in the U.S. fell sharply last week.”

According to Baker Hughes’ rig count released on Friday, the number of oil rigs dropped by seven last week, bringing the total down to 749, the fewest since June.

Price volatility on the horizon

Neil Atkinson, head of the International Energy Agency’s oil market and industry unit told a conference in Manama, Bahrain that oil markets could experience more intense price volatility in the coming years due to insufficient investment in new production.

According to Atkinson, investment is returning to the oil industry too slowly to eliminate the risk of tighter supply that will likely lead to price volatility, despite slowing global oil demand growth.

Atkinson says that over the next five years, it is not impossible to see a return to high oil prices from a decade ago.

Last week, the IEA released its Oil Market Report. In it, the agency said crude demand had grown by 2.3 per cent on an annual basis in the second quarter. Based on that, the IEA upwardly revised the overall growth rate for 2017 to 1.6 million barrels per day (b/d).

Following the release of the report, oil prices rose with Brent topping $55/barrel for the first time in almost five months.

Atkinson added that although the rate of demand is expected to slow over the medium term, the new demand growth revision shows it may do so from a higher point than previously thought.

As well, the IEA forecasts that over the longer term, to 2040, the share of oil in the global energy mix will decline only slightly, from 33 per cent in 2015 to 31 per cent in 2040. That likely means stable growth in demand as part of growth in wider energy demand.