Oil prices recover from 10-month lows, but crude glut still weighs

Oil prices
Oil prices rose on Thursday, but analysts remain skeptical that the global crude glut is diminishing. Pioneer Natural Resources photo.

Oil prices up after “pushed a bit too low”: Energy economist

Oil prices rose on Thursday after dropping to 10-month lows on Wednesday, but market sentiment remains down due to the stubborn global crude supply glut that continues despite OPEC’s supply cut agreement.

Brent crude futures ended the day 40 cents to $45.22/barrel, after falling as low as $44.53 during the session.  On Wednesday, Brent prices fell to $44.35, the lowest since November.

US crude futures were up 21 cents to $42.74/barrel, up from Wednesday’s low point of $42.05, the lowest since August 2016.

Hans van Clef, a senior energy economist with ABN AMRO told Reuters that “prices were pushed a bit too low.”  He added “The people who believe in higher prices are stepping in.”

Tropical storm Cindy impacted some operations in the Gulf of Mexico which modestly supported prices somewhat.  The storm is now weakening and has been downgraded to a tropical depression.

Since oil prices peaked in late February, crude has dropped about 20 per cent and gains made at the end of 2016 when OPEC announced most of its members along with some non-cartel nations would cut their output have been wiped out.

Despite OPEC extending the pact to the end of the first quarter of 2018, the global crude glut has hung on.  Participants in the OPEC pact have posted impressive compliance rates, but increased production from the US, Nigeria and Libya have overshadowed OPEC’s efforts.

“‎The question is whether OPEC will respond with further cuts or whether it needs to look again at its macro strategy for addressing low prices,” Michael Burns, oil and gas partner at law firm Ashurst told Reuters.

Genscape data showed oil stocks in Europe’s Amsterdam-Rotterdam-Antwerp hub hit a year-high of 64.2 million barrels in the week ending June 16, 24 per cent above the January low.

On Thursday, Reuters reported demand on the Colonial pipeline which transports gasoline to the northeastern United States, hit a six-year low.

“There is nothing fundamentally different about supply and demand to be bullish about. The sentiment is rightfully bearish,” Sarp Ozkan, analyst at Drillinginfo.com told Reuters.

In the US, crude output continues to rise as some shale producers can produce profitably even if oil prices drop below $40/barrel.

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