• Category: News

Oil Prices Show Signs of Peaking As Demand Grows Slowly

Oil prices have risen above $62 in what is seen as a possible increase in demand. Crude oil in Europe and U.S. saw their largest gains in almost two weeks following comments by Ali al-Naimi, Saud Arabia’s oil minister.

Oil Prices Show Signs of Peaking As Demand Grows Slowly

Brent crude rose by 71 cents up to $62.34 while U.S. crude oil declined to $450.59 by 40 cents, a 3 percent increase since the previous session.

OPEC officials are increasingly making optimistic comments on the performance of oil in the world market. The Saudi oil minister said that demand for crude was peaking up while an OPEC delegate commented that in the second half of 2015, demand would rise more strongly.

The comments are largely bearish with many officials adamant that they would not cut production even if oil fell down to historic lows of $20.

A Petromatrix analyst, Oliver Jakob said, “The comments, the change of tone from Saudi Arabia is an element that the markets are reacting to.”

In June, Brent fell from a high of $115 due to oversupply globally. The prices fell further after OPEC decided not to cut its own sources but instead engaged in a defensive against rival suppliers.

Prices have rallied more than 35% from a six-year slump of $45.19 recorded in January. The rallying of oil prices was supported by indications that investments in non-OPEC supplies are reducing progressively.

Jakob further said, “Analysts calling for $20 a barrel will be more cautious now. Also, there will be no more talk of $20 oil from al-Naimi.”

In its latest report, the U.S. government indicated that in the week ending February 20, domestic crude oil inventories rose to 434.1 million barrels, culminating to a seasonal high for seven weeks consecutively.

U.S. suppliers are hiking the discount of U.S. crude oil against the Brent, with the spread reaching $11.81 the week ending February 27, the widest spread since January 2014.

Co-founder and CEO of BlackRock Inc., Larry Fink expressed skepticism that oil prices will go back to $100 per barrel given that new technology is pushing down production costs.

Fink, who is also the chairperson of the world’s largest money manager said, “This oil shock was supply-driven and the supply was as a result of new technology. New technology will result in a permanent reduction of the cost of petroleum products.”

He further said that although supply will continue to increase, prices could surge to about $70 or $80 per barrel.

The international benchmark, Brent crude, fell by 14 cents down to $58.76 per barrel on the ICE Futures Europe exchange in London.

In 2014, oil fell by 48%, the largest decline in six years as the OPEC remained obdurate about not lowering supply, forcing U.S. companies to slow down production.

Since its all-time low of $45.19 per barrel in January, oil prices have increased by 30% as oil production in U.S. has come to a slow.

Even then, forecasts by Goldman Sachs Group Inc. indicate that supply in the U.S. will continue to grow as a result of new and improved technology that is bringing down the cost of production.

Fink said, “Countries that import oil such as China and India will benefit from low prices. This will increase at least one percent to India’s GDP.” 

According to the International Monetary Fund report, in the next two years, India is set to become the fastest growing emerging economy in the world, with a growth rate of 6.5% through to March 2017.

 

Market Impact

·       West Texas Intermediate for April delivery is presently at the $50.23 central pivot point. If the contract goes against the first resistance level of $52.04, prices may rise to $53.08. The U.S. crude oil benchmark may try to rise to $54.89 if the second resistance is breached.

·       If the contract breaches the initial key support level at $49.19, it could decline to $47.38. As such, a downward movement to $46.34 is expected if the second support is broken.

·       April futures are estimated at $60.75. The first resistance level will be at $63.08. If the contract is breached, it could increase and test $64.54. If the second resistance level is breached, the European crude benchmark may try to advance to $66.87.

 
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