The Organisation of Petroleum Corporation (OPEC) has attributed the increase in crude oil prices to supply disruptions in Nigeria and Iraq, and signs that US shale oil output is shrinking.
OPEC said that US refiners were providing support, with utilization above 89 per cent, as plants returned from maintenance ready to meet buoyant gasoline demand.
Besides, Nigeria’s crude oil production has declined by 67,500 barrels per day in March to 1.67 million barrels per day. The country had earlier recorded 1.74 million barrels per day in February compared to the 1.75 million the country recorded in January, 2016.
Brent crude oil price was $43.10 per barrel while West Texas Intermediate (WTI) stood at $40.36 as at Monday.
OPEC, which made this disclosure in its April monthly oil market report released at the weekend, added that massive bullish bets (close to record levels) on higher futures prices by speculators also helped in elevating oil futures prices to near $40 per barrel in March.
This, it said, occurred despite a slight improvement in fundamentals, as oversupply still persists amid record-high global crude oil inventories.
It noted that some support also came from a continued decline in gasoline stocks, improvements in US jobs data, a weak dollar,
According to OPEC, crude oil futures also rose on forecasts by various sources expecting sharper declines in non-OPEC supply in 2016, due to low prices.
OPEC added that the private sector of Nigeria sent positive signals in March, according to the Purchasers Manager Index (PMI) survey. “The index moved closer to the neutral line on a lesser decrease in output and new orders. The index posted 49.6 in March, up from 47.9 in February”, it added.
Dwelling also on price increase, the United Stats Energy Information Administration (IEA) stated that with global oil inventory builds expected to average 1.4 million bpd in 2016, oil prices are expected to remain near current levels. Forecast Brent prices average $35 per barrel in 2016.
It stated: “Global oil inventories are expected to grow by 0.4 million bpd in 2017. Lower forecast inventory builds contribute to a moderate price recovery in 2017, with Brent prices forecast to average $41 per barrel. Forecast Brent prices reach an average of $46 per barrel in the fourth quarter of 2017, as the global oil market is expected be relatively balanced late in 2017, with the potential for significant inventory draws beyond the forecast period.
“Forecast West Texas Intermediate (WTI) crude oil prices average the same as Brent crude oil prices through the forecast period. The price parity of WTI with Brent in the forecast period is based on the assumption of competition between the two crudes in the U.S. Gulf Coast refinery market, as transportation differentials are similar to move the crudes from their respective pricing points to that market.
“The expectation of continuing large inventory builds is a major source of uncertainty in the price forecast, as the capacity of global oil storage to absorb such builds is unknown. If global storage capacity becomes stressed, the cost of storage will rise to reflect more expensive marginal storage options such as floating inventories on crude oil tankers. The higher storage costs would lower near-month crude oil prices. Additional uncertainty stems from the pace of global economic growth and its contribution to oil demand growth and from the responsiveness of oil producers to sustained low oil prices.
It said that the current values of futures and options contracts highlight the heightened volatility and high uncertainty in the price outlook (Market Prices and Uncertainty Report).
“These levels established the lower and upper limits of the 95 per cent confidence interval for the market’s expectations of monthly average WTI prices in July 2016 at $27 per barrel and $57 per barrel, respectively. The 95 per cent confidence interval for market expectations widens over time, with lower and upper limits of $22 per barrel and $78 per barrel for prices in December 2016. At this time last year, WTI for July 2015 delivery averaged $52 per barrel, and implied volatility averaged 46 per cent, with the corresponding lower and upper limits of the 95 per cent confidence interval at $35 per barrel and $78 per barrel”.