Oil prices fall on oversupply fears
July 13, 2016, 7:54 am

Emerging economies which depend on significant energy imports – such as China – have benefited from the dramatic drop in oil prices since 2014 [Xinhua]

The forecast had been that US oil supplies to the week ending July 8 would drop by three million barrels; however, the American Petroleum Institute said late Tuesday that the inventory had actually increased by 2.2 million barrels.

The surprise increase signals that there continues to be oversupply measured against weaker than usual demand.

At press time, US benchmark West Texas Intermediate crude had fallen 1.52 per cent to $46.09 while international benchmark Brent Crude fell 1.69 per cent to $47.65 a barrel.

The drop in prices this week comes following strong gains in oil futures on reports that markets would balance out by the end of 2016.

Last week, US energy minister Ernest Moniz met with Saudi Arabia’s energy minister Khalid Al Falih at an energy summit in Beijing and both officials voiced similar sentiments about oil markets shifting into balance as global demand continues to grow.

“We still are in a situation of more production than demand. The gap is narrowing as global demand goes up slowly and production is not going up,” Moniz said at a press conference last week.

“Let’s say, within the next year, most of the people would expect a balance in the market.”

But that balance could be delayed and offset in term of its impact by oversupply and storage problems – at least for the rest of 2016.

Goldman Sachs warned last year that supply storage was reaching saturation therefore prompting companies to sell oil at lower prices to reduce pressure on their storage capacity.

Some companies, according to Reuters, are resorting to hiring supertankers to store excess oil supplies.

Reuters quoted Al Falih during an interview with German media as saying that there “are still excess stocks on the market – hundreds of millions of barrels of surplus oil. It will take a long time to reduce this inventory overhang.”

The US Energy Information Administration (EIA) said in its Short-Term Energy Outlook on Tuesday that “Brent crude oil prices are forecast to average $44/b in 2016 and $52/b in 2017. West Texas Intermediate (WTI) crude oil prices are forecast to be the same as Brent in 2016 and in 2017.”

But the EIA did predict that demand would grow toward the end of 2017.

Reports by Goldman Sachs and other investment firms such as Morgan Stanley also seems to indicate that demand for oil would increase at a greater pace next year and and could help stabilize prices between $50 and $60 a barrel, in line with the EIA predictions.

Meanwhile, the Russian ruble fell against the dollar on Wednesday as a result of the falling oil prices.

Russia is one of the world’s biggest producers and exporters of oil.

The BRICS Post with inputs from Agencies