Oil prices surged toward the $50-a-barrel-level this week after data showed a decline in US inventories. But prices pulled back on Thursday (August 3), due to uncertainty about OPEC’s ability to rebalance the market.
September West Texas Intermediate fell 56 cents, or 1.1 percent, to $49.03 a barrel on the New York Mercantile Exchange, while Brent crude for October on London’s ICE Futures exchange lost 35 cents, or 0.7 percent, to $52.01 a barrel.
On Wednesday (August 2), data showed that inventories of crude oil in the US dropped by 1.5 million barrels in the week to July 28, according to the US Energy Information Administration. A strong demand from the US also supported prices.
“In the end, it looks like we are continuing to see lower inventories, not only on the oil side, but also on the product side. Demand remains quite robust,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, told Bloomberg.
That said, investors are still uncertain about OPEC’s ability to reduce the supply glut in the market. Last year, the cartel agreed to curb production for the first time in eight years. In May, the historic deal to cut output by a total 1.8 million barrels per day was extended until April, 2018.
Next week, OPEC will meet in Abu Dhabi to discuss compliance levels with the deal and investors await for clues about further supply cuts.
“Five weeks of crude draws is lending some credence to the idea that the OPEC cut is beginning to impact the market,” said Gene McGillian, manager of market research at Tradition Energy in Stamford.
Yet OPEC output hit a 2017 high of 33 million bpd in July, up 90,000 bpd from the previous month, a Reuters survey showed earlier this week, led by a further recovery in supply from Libya, one of the countries exempt from a production-cutting deal.
Despite this bearish outlook, investment bank Goldman Sachs said the rebalancing in the market is accelerating.
“While OPEC’s production path remains uncertain, recent fundamental oil data have come in even better than we had expected,” Goldman said. “If sustained, these trends would help achieve the normalization in inventories by early next year.”
Other analysts also remain cautiously optimistic about oil prices this year. UBS expect prices to hit $60 a barrel in the second-half while BMI Research said prices will likely average $55.20 from the July to December period. Similarly, ANZ sees tightness coming in the fourth quarter, pushing oil prices into the high-$50s.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.