Talking Points:
- Oil trades below $50/b as the EIA once again reports an uptick U.S. crude inventories
- An increase in prices offered by Saudi Arabia offers support
- As does a growing conflict in Libya and a decrease in the rig count
Oil prices have continued to consolidate around $50 a barrel as forces pull the commodity in opposing directions. Dragging prices down, the U.S. Energy Information Administration’s weekly petroleum report has once again reported an uptick in crude inventories. Conversely in offering support, North American rig counts are down, conflict has heightened in Libya, and both OPEC and Saudi Arabia have acted in anticipation of elevated demand.
Data released by the EIA indicates that supply has once again expanded, as U.S. commercial inventories have reached their highest level in 80 years. With oil production averaging 9.5 mb/d during the week ending February 27, inventories increased by 10.3 million barrels. Further adding to the 444.4 million barrel reserve, crude imports increased by 89K when compared to the previous week.
However, shifts from both global supply and demand indicators have prevented substantial movements to the downside. Libyan oilfield production has been placed in a precarious situation as the actions of militants have heightened concerns over the area’s ability to maintain output levels. Furthermore, Baker Hughes (NYSE:BHI) latest rig count reveals a combined deficit of 73 active rigs in Canada and the United States.
From a demand perspective, Saudi Arabia raised the price of light oil for April delivery sent to the U.S. by $1.00/b and to Asia by $1.40/b. The price increase was announced by Saudi Aramco –the state owned oil conglomerate—and bears weight as Saudi Arabia is the world’s larger exporter of crude and the largest producer among OPEC nations. The move aligns with OPEC’s February report, in which the group forecasted a rise in demand to 1.17 mb/d in 2015, up from 0.96 mb/d in 2014. The organization also expects supply to slow by 0.20 mb/d to a level of 0.85 mb/d.
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