Troubling Global Trends Force Oil to New Lows

Crude Oil 1

Oil prices continue to decline amidst global uncertainty.

Faced with America’s stockpile gain, oil hit its longest losing streak in four months. An unwelcome report released by the American Petroleum Institute sent shockwaves throughout the industry when they reported that crude inventories had risen dramatically in the last week. This lead oil to drop for the 5th day in a row, creating a streak of declines that hasn’t been seen since February. The recovery of oil is hanging on the edge as disrupted oil supplies from around the world are returning to the market. This fresh surge of oil is set to prolong the global glut, while the $50 a barrel prices are luring producers back into the field. These troubling trends are contributing to the saturation of the oil market.

Oil Continues to Plummet In the Face of Global Unrest

Crude Oil 2

New twists are throwing a wrench in oil’s recovery.

“There’s just so much oil,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. “We’re going to probably have to see a decline in the huge stockpiles or another unplanned disruption to move higher.”

Oil’s 80% rally from a 12-year low came to an abrupt end this week. Crude inventories surged by 1.16 million barrels in one week, causing Futures to fall a whopping 1.9% after suffering a steady losing streak of 5.3% in the last four sessions. This decline was mirrored across the market, with West Texas Intermediate falling 81 cents (1.7%) & the Brent for August settlement declining by $1.11 (2.2%).

Encouraged by oil’s previous rally, manufacturers jumped on the chance to ramp up production. U.S. producers boosted their number of drilling machines for the second week in a row while Canadian active machines rose to their highest since March. This fresh influx is set to wreak havoc on an already frail market.

Crude Oil 3

The reconnection of disrupted oil sources will pump more oil into saturated markets.

Signs that Nigeria & Venezuela are ready to enter the market are fueling fears that the glut will increase. The Nigerian Militants who dismantled Nigeria’s oil industry are entering peace talks for the first time. This is a promising development that will undoubtedly lead Nigeria back onto the market. Another surprise was Venezuela’s move to begin talks of normalizing relations with the U.S. Venezuelan President Nicolas Madura announced that he’s finally ready to exchange ambassadors for the first time with their long time rival. These sudden turn of events will open up two huge suppliers to the already overcrowded global oil market.

In the midst of all this uncertainty investors are looking to the Federal Reserve for answers. Their next round of interest rate increases could give a clue on the future of oil. However, investors will have to wait until Britain clears up its Brexit referendum on June 23rd before any concrete decisions will be made. The growing disruption by this interesting movement has already resulted in $2.7 Trillion being wiped off the value of global equities. This unrest is creating a volatile environment where rates could change at the drop of a hat.

Even though the market is tumultuous, experts claim that it will still be able to recover. The International Energy Agency claims that by next year the global market will be almost balanced since demand is continuing to rise faster than output. They also believe that the glut is much smaller than people are saying. Their claims were validated by the fact that U.S. stockpiles declined by 2.33 million barrels last week. This leaves nationwide inventories at 532.5 million barrels. These numbers show that even though crude inventories are rising, there’s still hope for this ailing industry.

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