WTI sub-$50 first time since April
Oil prices closed below the $50 per barrel mark Wednesday for the first time since April. West Texas Intermediate finished the day at $49.19 per barrel on July 22, 2015. The last time prices were below the $50 mark was April 2 of this year, when WTI was $49.14 per barrel, according to information from Bloomberg. WTI September contracts traded as high as $49.63 early on Thursday but dropped to a low of $48.21 midday.
The slip came after several weeks of improving prices. Markets reacted to more builds in U.S. crude stockpiles, as well as events abroad that are expected to contribute more oil to the global glut. On July 6, WTI saw a 7.5% price drop, the steepest decline in prices since February 4, when the American crude benchmark shed 8.5% of its value.
Concerns over the Greek debt crisis, in conjunction with weakness in the Chinese stock market and news that Iranian crude oil could soon be joining the market following a deal on nuclear-related sanctions sent prices tumbling. The 7.5% drop was followed by an additional 1% decline in WTI prices following a surprise build to U.S. crude inventories. Analysts expected a draw for the week ended July 3, 2015, due to higher seasonal demand, but were met instead by a 384,000 barrel build.
Similar concerns this week have contributed to the continuation of WTI’s downward trend. Yesterday, The Department of Energy (DOE) reported a 2,468,000 barrel build to U.S. crude inventories when economists’ average estimates predicted a 1,450,000 barrel draw. The market continued to react to the potential of added crude oil from Iran as well, although experts vary widely on how much crude oil the country can actually produce, and how quickly.
Oil prices may remain low, according to some analysts
Many analysts were confident that oil prices would make a strong recovery, but that was predicated on four premises, reports Bloomberg. Most predictions expected that after oil prices fell from their highs last year that demand would rise, spending on new production would fall, stock prices would stay low and that production would taper off. The first three have proved to be true, but supply has yet to slow its growth.
Production in the U.S. has started to level off some since June, but OPEC continues to push supply higher, according to Morgan Stanley. Recently, OPEC’s largest producer, Saudi Arabia, has been ramping up production and reducing its spare capacity. “If you are Saudi Arabia … you would go to full capacity,” said Head of Commodities Research at Goldman Sachs Jeff Currie. In the current price environment, Saudi’s oil is depreciating, increasing the incentive to pump it out of the ground as quickly as possible.
Analysts at Morgan Stanley believe that OPEC is quickly reaching its maximum capacity, after OPEC produced at a three-year high in June, but with Iran coming back into the global market, and the situation in Libya slowly improving, OPEC capacity could potentially go higher.