Oil stock close to ‘balance’, barrel stubbornly below $56 – Weak demand weighs on crude prices

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If the global oil stock is close to balancing out, why then is the barrel price hovering around the $55 level and not jumping to a higher level? What makes it firm and steady but refusing to go above $56?

Is the reason the growth in shale oil production or the weak demand that is imposing pressure on the oil price? Or is it because of some hidden agreement to keep the oil price at the current level? Consumers and producers are enjoying such a stability that is encouraging growth of shale oil while OPEC and other producers are fully committed to their November agreement.

The current global demand is close to 98 million barrels per day. The demand is weak, along with the global economic growth, which is still at three percent. This is not helping at all in increasing the barrel price.

While oil producers are sticking to their production cut, USA shale oil industry is not wasting any time in growing at a faster rate with the number of rigs hitting a new record almost every week. There is an open field competition between the conventional and non-conventional oil without any sign of a compromise. And why should there be?

It seems the more stable the oil prices become and remain in the $50 level, the more of shale oil will be hitting the market. This represents a nightmare for OPEC concerning how to handle the new threat on a short-term basis.

It looks as if OPEC and Russia will agree to extend the agreement until the end of the year as long as oil prices remain as is. They will be experimenting with the current agreement for one full year, analyzing the results and determining how effective it was on the oil industry as a whole, and its impact on oil prices and oil economies. The agreement, by all means, has given them some sort of stability, continuity in higher incomes since 2014, and better revenues.

However, on the whole, are they happy? Or do they need production cuts to ensure the total oil inventory will decline in creating a tight market situation?

All offshore stocks piled on oil ships must be dealt with by the end of the summer season due to the higher export volume to come from the OPEC countries in the coming months because of local summer demand and the upcoming month of Ramadan.

Oil will remain stable at the current level of $52-$55. The prices are unlikely to go below $50, especially with the oil-producing countries determined to bring the oil market into a disciplined order with long-term balanced supply without any surplus. It was three years ago when every producer was pumping the maximum oil production.

Now OPEC, sticking to the maximum, will try to keep its supply to below 32 million barrels per day for some time.

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By Kamel Al-Harami

Independent Oil Analyst

This news has been read 7654 times!