While yesterday's dramatic fall in the oil price saw a barrel of WTI crude fall by almost 8% to around $45 a barrel, the oil market opened gapped up this morning marginally below the psychologcial $50 per barrel level.
The volatility of crude oil price, which has now entered the oil market is due to a combination of factors and includes a markedly stronger US dollar, as well as a sharp decline in the Dow Jones, with investors once again worrying about the state of the banking sector.
Matters were not helped yesterday by a rumour of a suspect blog purporting to have the stress test results for US banks. In addition, evidence of falling demand added pressure to the price of crude oil, and today's API figures (American Petroleum Institute) numbers will confirm yet another increase in the crude oil stockpile. Market analysts estimate that crude stocks may increase by as much as 3m barrels, although gasoline stocks are expected to fall by 860,000 barrels, distallates are expected to be down by 1.25m, and refinery capacity to increase by 1.05% to 81%.
Meanwhile there is speculation that OPEC will not introduce any further cuts in production at their meeting scheduled for May in Vienna, which also coincides with the start of US "driving season". At a recent conference the United Arab Emirates' Oil Minister Mohammad Al Hamli stated that although global oil markets were well supplied, he stressed that producers still needed prices at "reasonable" levels in order to maintain investment and avoid "another cycle of high oil prices."
However, with so much uncertainity as to when the current financial crisis is likely to end, trying to keep the oil price at a "reasonable" level is proving far from easy. In addition what constitutes "reasonable" for one producer country may not suit another.
For example Venezula needs the price of oil to be at least $97 in order to balance its books whilst Saudi Arabia can cope with prices at around $60 to $65 and Nigeria needs the price to be at least of $70+ a barrel. In addition Nigeria has recently suffered major disruption to its oil production following a pipeline fire.
So far OPEC has managed to remove a total of 3.49 million barrels a day since September 2008 and with the IEA (International Energy Agency - the energy watchdog for the major industrialized nations) predicting that the current global slowdown will take out a further 2.4 million barrels a day it is easy to see just how difficult this market is becoming for producers, consumers, traders and investors.
Anna Coulling
http://www.prices-oil.org
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