There is never a dull moment in today’s oil market.
We had hardly got used to the notion that prices were marching ever higher, with the possibility of reaching $100 a barrel, than we learned that crude was on the slide.
Higher than expected US inventories were landed with some of the blame for this, along with the longer-term current concerns about slowing international growth.
The decline continued this morning, with Brent crude – a benchmark price used in many international contracts – losing 94 cents a barrel, or 1.13%, to $82.15.
West Texas Intermediate (WTI) was also lower, losing 79 cents a barrel, or 1.08%, to $72.38.
A very strong year
Look at the past month, however, and the picture is rather brighter. Brent crude was trading at $79.06 a barrel on 11 September and $83.09 on 10 October. Similarly, WTI changed hands at $69.25 on 11 September and at $73.17 on 10 October.
The longer-term rise has been more marked still. On 11 October 2017, Brent crude traded at $56.25, and by 10 October this year it stood at $83.09. That is an increase of more than 47%.
WTI was priced at $51.30 on 11 October 2017 and at $73.17 on 10 October this year. That is a 43% rise.
What needs always to be borne in mind is that the balance between the world oil supply and demand is very delicate. According to the International Energy Agency (IEA), the body that “works to ensure reliable, affordable and clean energy for its 30 member countries and beyond”, global supply in the second quarter of this year stood at 98.98 million barrels a day.
Demand during the same period was running at 98.71 million barrels a day. In other words, the gap between supply and demand was just 270,000 barrels a day. That is a very narrow margin and it is therefore it is unsurprising that crude prices can move markedly up or down on reports or even rumours of, for example, new sanctions against a Middle Eastern oil producer or a supply interruption in the Niger Delta.
Record US industry performance
With such a tight supply-demand picture, inventories assume great importance. This week it emerged that the American Petroleum Institute (API), the trade association for the country’s oil and gas industry, reported a significant rise in US inventories of crude oil in the working week to 5 October. The increase, of 9.75 million barrels, was well in excess of analysts’ expectations of about 2.6 million barrels.
However, US petroleum demand during August was also solid. “This was the strongest demand for any month since August 2007 and reflected solid economic growth, industrial activity, and consumer confidence,” said the API.
To get more on the latest oil market moves, watch this video from our Chief Market Strategist David Jones.