Sharp rise in US crude stocks: the only chart that explains the oil price stagnation – By Hemantha Yapa Abeywardena
Palpable anxieties in the oil markets
The long-awaited meeting of the OPEC+, meanwhile, went ahead on Sunday, June 2, with some members opted for being online and the rest meeting in person. The members, although put on a brave front, tentatively agreed to extend the production cuts beyond 2024 so that the dwindling prices can be shored up. It, however, appears to be easier said than done.
At present, the OPEC+ cuts its production by 5.58 million bpd – barrels per day: there are 3.36 million bpd production cuts that were due to expire at the end of 2024; in addition, 2.22 million bpd production cuts by 8 members of the cartel that were supposed to expire at the end of June.
The OPEC+ on Sunday 2, June agreed to extend the production cuts of 3.36 million bpd by another year – until the end of 2025; the voluntary production cuts, meanwhile, are going to be phased out by the end of September, 2024, instead of in June this year.
The crude oil markets, however, were not impressed. On Monday, when the markets opened for business, the oil price started falling despite the extension of production cuts, defying the usual logic, leaving the OPEC+ in a lurch. In short, the carefully-calculated OPEC+ move did not do the trick.
Defending the production cuts, Prince Abdulaziz bin Salman, the Saudi oil minister, said that they were looking forward to seeing consistency in the global economic growth, not pockets of growth at random places, before restoring the oil production output to pre-pandemic levels by the members. Prince Abdulaziz said that the members are keen on seeing the fall of interest rates in order to stimulate the economic growth, especially in the West.
Even in the current circumstances that are not in favour of a robust, global, economic growth, the OPEC+ expects the demand for oil hovering over 43.65 million barrels bpd during the next two quarters of this year.
The IEA, International Energy Agency, however put a damper on the figure, by saying that the number in question will be far less than that of the OPEC+ – 41.9 million bpd.
The US crude oil stocks, meanwhile, appear to be more in tune with the estimation of the IEA than that of the OPEC+; there has been a steep growth in the US crude oil stocks in the past few weeks. Judging by the stagnation of oil prices, the only factor that appears to be accounting for the development is the US crude stocks; at present it accurately reflects the inflationary pressure felt by the consumers in the world’s top economy, the US.
Since the figure is still below the five-year average, the policymakers of the OPEC+ may have assumed that the demand would outpace the supply at some point in the near future, something that would put the prices up.
The members of the OPEC+, meanwhile, agreed to meet in December, 2024 again. The relatively long gaps between the successive meetings recently may be an indication of disagreements among the members over the production cuts, as the latter clearly affect the coffers of the poorer members of the cartel.
All in all, the OPEC+ is going to continue its cautious approach in gauging the market sentiments. It is acutely aware of the significance of the presidential elections in the US in November and of course, the prospect of a change in the incumbency in the White House, which could trigger off a seismic effect across the energy markets.
