This commentary is from USAK’s Energy Review Newsletter
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energyreview@turkishweekly.netAfter hitting $60 a barrel, last week the prices decreased after the statements of Saudi Minister of oil; Ali al Naimi that they are satisfied with the oil prices and in OPEC meeting on 15 March in Vienna it won’t be necessary to take a decision to reduce production further. As known, OPEC countries decided in total to cut oil supply 1.7 million b/d after the cuts of 1 November (1.2 million b/d) and 1 February (500.000 b/d). On Thursday the oil prices plunged and became $54.12 for Brent and $56.87 for WTI.
The trend of oil prices looks like a rollercoaster’s movement from the beginning of this year. After the mild weather conditions the oil prices fell sharply and even became $49.90 in the first half of the January. Later, turning back to normal temperatures of the season, heating oil demand has risen and the prices began to increase. After the implementation of oil production cuts beginning from the February 1 the prices rose above the $60.
Source: Financial Times and Energy Information Administration (EIA)
However, we are living the last days of the winter season and the weather conditions would not be an important determining factor for the next quarter of the year as it is in the first quarter. For now, the OPEC members are satisfied with the band of $50-$60 for the price of oil. And, with the absence of further expectations of supply cuts the main risk on oil prices is the geopolitical imbalances.
Firstly, the ongoing violence in Nigeria negatively affects the oil production in this area. As being the six biggest oil producer of OPEC, the problems in this area negatively affects oil prices and causes price increases. The second threat is Venezuela’s nationalization of oil production. Also, Iran’s conflict with the US cannot be ignored.
Last week all the petroleum stocks decreased in the US. The heating oil stocks declined by more than 3 million barrels and the price of heating oil became 244.9 cents per gallon. The negative relation between heating oil pries and stocks preserve its trend. On the other hand, the crude oil stocks decreased for about 600.000 barrels and became 323.8 million barrels; moreover, gasoline stocks declined for more than 2 million barrels and became 225.15 million.
Source: EIA
According to a Bloomberg Survey, 10 of the 42 analysts expect a rise in oil prices and 21 of them expect a decline whereas 11 are neutral for the next week. It is claimed that as a result of warming weather in the east coast the demand for heating oil and natural gas will decline for the next week in the US.
To conclude, in the short term the statements of OPEC members and weather conditions would be effective on oil prices. For the mid-term, the geopolitical imbalances should be monitored carefully.
References:
- Shenk, M.Oil May Fall Because of Milder Weather, Survey Shows, Retrieved from:
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