In Depth

Oil price posts two-year highs - but how long can it last?

Brent rose above $59 a barrel this week, its best third-quarter showing since 2004

il price rises as IEA predicts fall in production

21 April

The price of oil rose today, reversing falls yesterday, with the news that the International Energy Agency (IEA) is predicting a major fall in production.

Brent crude rose 77 cents from a session low this morning to hit $46 a barrel by 7.50am UK time, 20 cents above yesterday's closing price. In the US, WTI futures were up 19 cents from their last close, at $44.37, after a session low of $43.62.

The IEA says this year will see the biggest fall in production by non-Opec nations for 25 years. If it materialises, this production cut will ease the global oversupply that has dragged the market down for almost two years.

IEA chief Fatih Birol told reporters in Tokyo: "This year, we are expecting the biggest decline in non-OPEC oil supply in the last 25 years, almost 700,000 barrels per day.

"At the same time, global demand growth is at a hectic pace, led by India, China and other emerging countries."

His prediction alone was enough to reverse yesterday's declines, says Reuters. Oil fell on Wednesday with the news that Kuwaiti workers had called off a strike. The industrial action would have caused a cut to production, easing the oversupply.

After the IEA intervention, however, Bernstein Research notes: "Optimism has returned to energy markets, at least for now."

Today's price for Brent is the highest since November, notes the FT, and investors are interpreting this as an indicator of stronger economic growth to come later this year after a rocky first quarter.

It was feared at the weekend that the failure of a Doha summit of the world's major oil producers to agree a production cut would send the price of oil spiralling down this week. But that didn't happen, says the FT.

Instead, energy traders downplayed the failure and are looking ahead to "the prospect of supply and demand becoming balanced during the second half of the year, thus supporting crude prices".

There's a lot riding on the price of oil, says the newspaper: relief at this week's recovery has helped drive global equities to new highs for 2016, suggesting that the markets are heading into smoother waters.

"A pronounced slide in oil back towards $30 a barrel or lower has the power to inflict considerable damage across the financial system and reinvigorate market volatility," warns the FT.

Oil price down again after Kuwaiti workers call off strike

20 April

Oil prices fell this morning after Kuwaiti workers called off a three-day strike. Brent crude was down 95 cents to $43.08 a barrel by 6.40am UK time, while West Texas Intermediate futures dropped $1.10 to $39.98 a barrel.

Yesterday's news of a strike boosted the value of oil because it meant a reduction in the global stockpile. Supply has exceeded demand for almost two years, crippling the market.

However, fears about production seemed to have returned this morning. Investors were already disappointed after last weekend's long-awaited meeting of the world's major oil producers ended in failure.

It had been hoped the summit of in Doha, Qatar, would result in an agreement to freeze production at January's levels, easing the problem of oversupply and pushing prices back up.

But the talks failed for political reasons, with regional rivals Iran and Saudi Arabia, fighting a proxy war in Yemen, causing the stumbling block: Iran refused to send a delegate to the talks and Saudi Arabia would not go ahead with a freeze without Iranian involvement.

As a result, analysts expected a major sell-off on Monday - and, at first, it seemed they would get exactly that. Prices fell sharply in early trading. Later, however, hopes that the market was rebalancing, with higher-cost production forced offline, saw them rise again.

The strike in Kuwait led to even more optimism, says Marketwatch, as did disruptions to production in Iraq and the North Sea. Today, however, investors seem deflated and some analysts see little scope for optimism. 

"With oversupply back in focus, prices are likely fall in the near term amid slower demand growth," predicted Gao Jian, of SCI International.

Oil price rises as strike in Kuwait cuts supply

19 April

A strike by Kuwaiti workers reduced the global oversupply of oil today, prompting a rise in prices.

However, analysts say the increase will be short-lived and oil prices will continue to slide down, as they have for almost two years now.

Kuwait's output fell to 1.1 million barrels per day on Sunday, says Reuters, as thousands of workers went on strike. In March, the Gulf state was producing 2.8 million barrels a day.

The drop pushed the cost of Brent crude up to $43.25 by 7.51am UK time today, 33 cents above its previous close, while West Texas Intermediate futures also rose 33 cents, to $40.11 a barrel.

Nevertheless, experts said the disruption would be brief, with shipping data showing that Kuwait still managed to load a two-million barrel crude oil tanker despite the industrial action and the authorities saying they would take legal action against the strikers.

"Sensitive to union pressure, the government is likely to compromise on most of striking oil workers' pay demands,” Eurasia group said.

"In the coming days, oil production is likely to partially recover from its initial drop as non-striking staff is redistributed and inventories drawn upon, avoiding a force majeure on loadings."

Prices plummeted early yesterday, sparking fears of a major sell-off prompted by the failure of last weekend's meeting in Doha, Qatar, of the major oil producers to discuss freezing supplies at January's levels.

Iran refused to send a delegate to the talks, prompting its regional rival, Saudi Arabia, to toughen its stance and insist it would not agree to limit production without Iran's involvement.

Prices fell initially on the news, but that was "offset by the realisation that the market was rebalancing, as low prices forced high-cost production offline", says the Financial Times.

After the initial fall of as much of seven per cent, Ice June Brent ended down just 2.5 per cent, a fall of a dollar to $42 a barrel. Nymex May West Texas also tumbled seven per cent at first, but recovered to $39.77 a barrel, a fall of just 1.5 per cent.

Oil price plummets after Opec fails to agree production freeze

18 April

The price of oil tumbled this morning as traders reacted to the news that the world's major oil producers have failed to agree a production freeze.

It had been hoped that the Opec exporters, and other major producers including Russia, would reach a deal at a long-anticipated summit in Doha this weekend. Prices have enjoyed an upswing in recent weeks on just that expectation, after a long slump of nearly two years in the oil market.

But the meeting ended without progress after Iran refused to even send a delegate, a result of political tensions between the Islamic republic and its key regional rival Saudi Arabia, the biggest oil producer in Opec.

Disappointment at the failure of the meeting led prices to tank. In trading today, Brent fell by more than 5 per cent to $40.87 a barrel while US crude futures were down 5.5 per cent to hit $38.16 a barrel.

The impact was felt on Japan's major share index, the Nikkei 225, which fell 3.4 per cent (572.08 points) to 16,275.95. Australia's commodities-heavy S&P ASX 200 closed down 0.4 per cent at 5,137.10, says the BBC.

Sanjeev Gupta of EY said the failure to agree a freeze has "revived price collapse fears especially after Saudi Arabia hardened its stance and threatened to raise production quickly if no freeze deals were reached", says the Daily Telegraph.

Meanwhile, says the paper, Peter Lee of BMI Research, warned that prices could fall by 15 per cent. He said: "What is clear coming out of this is that Opec would no longer be the main driver of oil prices."

For IG Markets, Angus Nicholson blamed the politics: "With Saudi Arabia fighting proxy wars with Iran in Yemen and Syria/Iraq, it is understandable that they had little inclination to freeze their own production and make way for newly sanctions-free Iran to increase their market share.

Oil price set for 'massive rebound', says analyst

15 April

The oil price remained steady this morning, with traders cautious about taking on new positions ahead of the meeting of major oil exporters in Qatar this weekend - although one analyst predicted crude prices may be set for a "massive rebound" in the second half of 2016.

Oil producers, including top exporters Saudi Arabia and Russia, will meet in Doha on Sunday to discuss "freezing output around current levels in an effort to contain a global supply glut that sees some 2 million barrels of crude produced every day in excess of demand," Reuters reports.

This morning, Brent crude futures were at $43.92 a barrel at 9:03 GMT, slightly up on their last close. US West Texas Intermediate futures were also almost unchanged, trading at $41.56.

According to one analyst, however, the oil price is likely to rebound in the second half of 2016.

A close reading of Opec's April market report reveals that while Opec "did not mention surging oil prices or sharp increases in exploration and production activity in their report [...] they implied it," says Brad Beago, on Oilprice.com.

The combination of global growth and decreased production, in conjunction with Opec's projections for supply and demand, could lead to a "massive rebound", he adds.

Other analysts are less confident, though, with some suggesting the Doha summit will be unlikely to significantly reduce the oil glut that has pulled down crude prices by as much as 70 per cent since 2014. 

Instead of increasing prices, Barclays said an agreement on reducing production could simply "prevent prices from otherwise falling further", Reuters reports.

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