More Disturbing Facts for Crude

As the increase in US crude inventories and the already high Saudi Arabian production strengthened fears that a major supply glut that will remain till at least mid-next year and will keep impacting the market.

There was a slump in global crude prices as the International Brent Crude futures edged down by 10 cents to settle at $43.95 per barrel, and WTI Crude futures was trading 10 cents lower at $41.95 per barrel at 6:50GMT. Oil prices dropped swiftly in the hours after data from the U.S. Energy Information Administration (EIA) reported a 1.1 million barrels increase in crude inventories for the week ending Aug 5, after analysts had anticipated a 1 million barrels increase.

"Crude oil stocks rose 1.06 million barrels to 523.6 million barrels. The unexpected rise was driven by reduced operating rates at refineries, which fell 1.1 percent to 92.2 percent of capacity," ANZ bank stated today adding that, "Bearish supply-side news also weighed in on the market, with Saudi Arabia reporting a record 10.67 million barrels per day (bpd) production in July,"

Worldwide production of the liquid mineral from the Organization of the Petroleum Exporting Countries (OPEC), which is led by Saudi Arabia, also increased after receiving a push from countries like Iran and Iraq, who have now filled the void created by the effect of militant attacks in Nigeria.

“The already slowing refinery runs and resultant builds in crude inventories is a precursor to what is expected in the fall when refiners enter maintenance,” said Anthony Starkey, energy analysis mangers at Platts Analytics’ Bentek Energy.

The prices were also badly affected by the OPEC’s monthly report for last month which revealed that Saudi Arabia’s production was at a record high rate as they generated up to 10.67 million barrels a day. The total daily production of OPEC has now climbed to 33.1 million barrels within the same month.

Analysts believe that it is the usual practice of Saudi Arabia to raise its crude production during the summer to match the country’s demand for electricity mostly used for the purpose of cooling. However OPEC reports that the domestic demand for crude in June is lower when compared to the demand reported a year earlier, this report implies that the country has raised production most likely to increase exports.

Analysts say that even if an OPEC production freeze agreement is reached, it would leave global supply and prices mostly unaffected as many producers are still pumping at max speed.

Moreover, “without the full backing of Saudi Arabia and its closest allies, the deal would never come to fruition”, said Tim Evans, a Citi Futures analyst, further saying that, “The talk of limiting output may support the market for a time, much as it did in the first quarter of the year. But a deal seems pretty unlikely and enforcement problematic at any case,”

Investors and analysts will stay glued to their seats for the rest of the day as the International Energy Agency is set to release its monthly report later today.