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There’s little good news for oil investors as oversupply continues

Published: 10:03 07 Jul 2017 BST

oil workers on rig

There’s been little good news to comfort the market in recent weeks as the oversupply continues and investors are looking for better returns.

A fall in US inventories helped boost the sentiment this week and in early trading on Friday, Brent crude was priced below US$48 with WTI close to US$45 a barrel.

Crude oil inventories in the US were down 6.3 million barrels, according to the Energy Information Administration.

Analysts expected a drop of around 2.3 million barrels, but refinery runs and lower imports are helping the situation.

Crude inventories are now at the lowest point since January, at 502.9 million barrels. Gasoline stocks were also lower, down 3.7 million barrels, indicating strong demand as the summer driving season continues.

OPEC cut calls not popular

The call for OPEC and friends to reduce output further is not a popular sentiment as US production continues to increase.

Russia said this week it is not in favour of deepening cuts.

OPEC production was expected to remain steady given the stricter compliance to the production agreement, but a survey by Platts sees increased production, with crude oil output up 220,000 barrels in the last two months to 32.49 million barrels a day.  

Nigeria and Libya are exempt from the cuts and production is slowly coming back and adding to the glut.

Platts reported that Libyan production for June was back to its highest level in three years at 810,000 barrels a day. Nigeria is currently producing about 1.78 million barrels, its highest level this year.

At these levels of production, many analysts believe both countries might need to be brought into the OPEC production agreement. The monitoring committee will meet later in July in Russia.

Investment banks revisited outlook for crude

With little positive news to help boost the oil price in the near-term, many investment banks are reviewing their crude price outlooks for this year and next.

Bank of America Merrill Lynch is now expecting Brent to average at US$50 a barrel this year and US$52 for 2018. 

That’s down US$4 a barrel from their previous outlook. Bernstein Research is also looking at a US$50 average, about US$10 less that their previous price projection.

Saxo Bank is still holding out for a possible increase to US$55 in coming months, but says the price could go lower next year.

Transition to greener fuel future

The International Energy Agency released a detailed report this week on The Future of Trucks: Implications for the environment and concluded that “trucks are a major contributor to the growth in transport-fuel consumption, as well as rising carbon dioxide and air pollutant emissions.”

The trucking industry has contributed 40 percent to global oil demand in recent years, about 17 million barrels a year.

While growth in oil demand will be welcomed, the IEA is aware of the possible harmful “increase in carbon dioxide emissions of nearly 900 million tonnes through 2050.”

Calling for greater efficiency, the executive director of the IEA, Fatih Birol says that given that trucks “are now the dominant driver of global oil demand, the issue can no longer be ignored if we are to meet our energy and environmental objectives.”

The traditional combustion engine suffered another defeat this week as Swedish car maker Volvo said all its new production from 2019 will have electric motors.

Volvo is the first of the traditional carmakers to embrace this cleaner energy future, announcing it will offer a selection of hybrids as well as pure electric cars.

The French environment minister, Nicolas Hulot said his country is considering banning all petrol and diesel cars by 2040.

Managing this imminent transition to a greener fuel future will be among the many topics facing leaders of the energy world who will gather in Istanbul for the World Petroleum Congress next week.

The lower for longer price will be high on the list, but looking towards a more sustainable future for the industry will need greater cooperation in the years to come. 

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