Commodity Trade Mantra

Oil Prices Rise Despite Threat of Potential Supplies

Oil Prices Rise Despite Threat of Potential Supplies

Oil Prices Rise Despite Threat of Potential Supplies

Oil prices are expanding their recent rally despite the failure of the Doha meeting. Traders are now concentrating on the declining North American production. US producers have lost their potential of investing in growth opportunities amid a substantial decline in crude oil prices from $120 a barrel to below $30 a barrel.

For instance, Devon Energy (NYSE:DVN) lowered its capital expenditure by 75%, while ConocoPhillips(NYSE:COP) slashed future investments from $17B in 2014 to only $6.5B for this year. Other major exploration and production companies have worked on a parallel strategy of slashing dividends and lowering investments.

Consequently, US oil rigs have been falling over the last four consecutive quarters to the lowest level since 2009. At the end of last week, US oil rig count declined by three to only 351 rigs. The EIA has anticipated a steep fall in North American supplies from over 9.7 million barrels a day in last year to 8.3 million barrel a day by the end of this year.

Today, the IEA’s chief Fatih Birol said that oil supplies from Canada, United States, and Latin America could decline by 700,000 barrels per day this year. Oil prices are soaring in early Asian trading after the IEA Chief’s statement about declining supplies.

On the other hand, the world’s largest producers, including Russia, Saudi Arabia and Iran, are trying to expand their production after the failure at Doha.

Yesterday, Russia stated that they are ready to press on with their oil production to historic levels of 12 million to 13 million barrels a day. Saudi Arabia has also sought to expand its crude production amid its rivalry with Iran.

After the removal of sanctions, Iran plans to get back its market share of 4 million barrels a day in the short time. In addition, some other Gulf producers can comfortably increase their production at current prices.




Courtesy: Alexander Gorodezky

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