Mixed Feelings Trail Crude Prices

• Al-Sada’s comment gives crude upward momentum


• US Production forecasts still see crude lower

The price of crude oil made a significant rally between on Monday evening and Tuesday morning, as it rose above $45 per barrel when the president of the Organization of Petroleum Exporting Countries (OPEC) assured the market of a rise in September. Mohammed Al-Sada, who is both Qatar’s minister of energy and industry, stated on Monday morning that there will be higher oil prices since, “higher oil demand is expected in the third and fourth quarters”.  He also added that crude oil price has made some steady improvements since the slump in Crude Oil production, the shrink in inventories and the supply outages, while global demand for crude increased within the same period.

The international benchmark for oil, Brent crude leaped almost 3% from $42 to $45.33 a barrel in the moments following the statements made by Al-Sada. The West Texas Intermediate (WTI) also jumped 2.9 percent to settle at $43.02.

Al-Sada had said earlier that the recent decline observed in oil prices and the current market volatility is only temporary. “These are more of an outcome resulting from weaker refinery margins, inventory overhang – particularly of product stocks, timing of Brexit and its impact on the financial futures markets, including that of crude oil,” he said.

“OPEC basket price surged to $41.10 a barrel, against $40.08 before Al-Sada’s sentiment”, according to OPEC secretariat.

Crude oil price is also being trailed by a generally negative outlook for the future by the US production forecast which predicts that oil will fall further. The U.S. output is set to fall more slowly than previously expected, this was stated by the Energy Information Administration in its short-term energy outlook Tuesday. The EIA expects U.S. output to average 8.73 million barrels a day this year and 8.31 million barrels a day next year, up from its prior forecasts of 8.61 million and 8.2 million, respectively. U.S. production averaged 9.4 million barrels a day last year.

After witnessing a rally in oil prices this spring, producers moved to raise their drilling work rate. According to Baker Hughes Inc., the number of rigs currently drilling for oil in the US has been on the increase for 6 consecutive weeks.

“After a steep drop over the past year in U.S. oil production, a recent uptick in the number of rigs drilling for oil is expected to contribute to more steady monthly oil output starting this fall,” said EIA Administrator Adam Sieminski in a statement.

While the OPEC’s next rumored talk may not lead to a definitive outcome for the future of crude prices, the rumor of the talk will keep the prices from falling.

“The call for a September OPEC meeting to freeze production is likely to send prices back within...$42.50-$45.50,” said Peter Cardillo, chief market economist at First Standard Financial, in a note. “The rebalancing of the market is in progress...as demand remains strong and lower production from non-OPEC members take hold.”