For the second time in less than a week, the price of oil has dropped several percentage points over the course of several hours. On June 14, WTI dropped almost 4% to below $45 a barrel and on June 20, WTI dropped as much as 3% before closing at $43.23, a 2.2% drop.
Although the media has tried its best to explain these recent tumbles as the result of either higher-than-expected crude oil stocks (June 14) or growing production from Libya and Nigeria (June 20), there really are no clear cut explanations for the recent slate of sudden and swift price drops.
Increasing production from Libya and Nigeria is an easy culprit for the most recent drop, but this explanation is insufficient since both countries have telegraphed these increases for the better part of a year. These increases were clearly presented at the May OPEC meeting and the market accounted for them at that time. News in June of gradual production increases (Libya +50,000 bpd and Nigeria + 62,000 bpd in August) should not cause a sudden price drop of this magnitude.
Other culprits for the sudden drops could include the following:
On the other hand, there are many signs indicating that oil may soon be on the rise.
What we are most likely seeing now is a reaction to the fact that there is no strong indicator about where the market is heading. In the absence of strong signs, the market tends to magnify certain speculative moves by major financial institutions. This could have manifested in sudden drops (or spikes), like the one seen on June 20.
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