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Oil news for Friday

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Oil news for Friday

Oil news for Friday
July 08
09:00 2016

Brent crude oil increases in price due to volatility

Oil prices continue to sharply fluctuate against the background of the remaining uncertainty in the global market. On Friday oil contracts are slightly growing up after the fall by almost 5 % on Thursday. This happened on the background of the information of the weaker than expected reduction of fuel stocks in the USA.

At the London Stock Exchange the price of the August futures contract for Brent crude oil has been $ 46.91 per barrel to the beginning of the day. This is 1.1% above the previous session mark.

The cost of futures contracts for WTI crude oil for August has risen by 0.9% – to $ 45.54 per barrel during trading at the New York Mercantile Exchange.

As before, market prospects are  uncertain due to the conflicting signals about the supply and demand as well as increased risks for the world economy that are associated with the UK decision to leave the European Union.

On Friday market participants agreed that the negative reaction to the information about the US stocks, which caused the prices fall to 2-month lows, was excessive. The reduction of reserves has been going on for much longer than a month. The extraction of raw materials in the United States has been reduced by 12% compared to the peak level.

According to the Ministry of Energy, the US crude oil stocks has fallen by 2.2 million barrels for the week that ended on 1 July. The report was negatively perceived by the market, because the information of the American Petroleum Institute assumed more sudden fall in oil stocks. The specialists that had been surveyed by the Wall Street publication, in general, expressed expectations for the decline of oil reserves in the country by 2.3 million barrels for the last week.

Brexit threatens the oil market recovery

The analysts consider that the decision of the UK citizens to leave the European Union can weaken the demand for oil and stop the stabilization of the oil market, which has been visible for the last three months.

14 investment banks took part in the survey conducted by the newspaper The Wall Street Journal. Their consensus forecast assumes that next year the average price for Brent crude oil will be $ 57 per barrel, WTI – $ 55 per barrel.

The results of the survey show that in 2016 the average Brent price will be equal to $ 45 per barrel, WTI – $ 43 per barrel.

Oil prices have grown by more than 65% from the 13-year-old lows, which were recorded in February this year. This happened due to the disruptions in oil supply from a number of the world regions and, moreover, because of the stable reduction in shale oil production in the USA.

But the analysts point out that Brexit can undermine the growth of the oil market. They are worried about the possible consequences for the UK economy and the euro zone economy after the exit from the EU as well as the uncertainty that Brexit causes for other regions of the world.

Oil has fallen in price by almost ten per cent since the date of the referendum in the UK, which took place on 23 June, due to the withdrawal of investors from the assets that are considered to be risky. These assets include commodities.

On Friday, September futures for Brent crude oil amounted to $ 46.65 per barrel, WTI crude oil futures for August- cost $ 45.35 per barrel.

Misvin Mahesh, the analyst at Barclays Plc, considers that «Brexit can cause a cascading effect if other economies will be dragged into chaos. It will inevitably affect the demand for oil.”

The United Kingdom accounts less than two percent of global demand for raw materials, but the European share in equal to more than ten percent.

The analysts have lowered the forecasts for the economy growth. Many of them believe that the UK exit from the EU will trigger a recession in the country and significantly weaken the recovery in continental Europe.

According to Barclays forecast, Brexit can result in reduction of global oil demand by 100 thousand barrels per day (b / d), both in the current and future years.

Despite the fact that this decrease is slight with the total demand of 96 million b / d, the oil price reaction can be incomparably sharp. It usually happens when the market sentiment falls, writes The Wall Street Journal.

«Probably, the direction of oil prices will match the way of political uncertainty in the coming months”, – reported Barclays.

The oil market may also be affected by the strengthening of the US dollar, which is observed as a result of Brexit. Oil prices are denominated in dollars; and the strengthening of the US currency makes the “black gold” more expensive in the currencies of other countries.

According to the information of the late June, net long positions on WTI crude oil have decreased by 30% if compared to the level of the end of April as Commerzbank AG data shows.

The production recovery in regions with earlier supply disruptions, including Canada and Nigeria, is among other risks for the oil market, according to the experts. In addition, the slowdown in the production cut in the USA, where the increase in the number of operating drilling rigs has been fixing for some weeks, is one more risk for the oil market.

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