Oil prices climbed to $50 per barrel for the first time this year due to supply worries while the increasing global demand levels are working in favour of its recovery.
The increase in oil prices came after reports linked the recent fires in Canada to lower supply and therefore reduced oil inventories. The release of data by the U.S. Department of Energy revealed that the nation’s crude oil stockpiles decreased by 0.8%, from 541.3 to 537.1 million barrels, as at the week ended Friday 20 May. The U.S. does not only share borders with Canada of about 2,475 kilometres, but the latter is also the U.S. largest supplier. And so the recent wildfires mainly at the western parts of Canada restricted the supply of crude oil by an estimated one million barrels each day.
Other than Canada, there have been other lower-scale disruptions to oil supply such as the limitation of crude oil pipelines in Nigeria due to attacks by militant groups. And even though production by major exporters such as Saudi Arabia and Iran has increased, it appears that the supply disruptions by other producers combined with the U.S. reduction in output have increased oil’s price.
The ongoing discussions between the Organisation of the Petroleum Exporting Countries (Opec) and Russia regarding the freezing of crude oil production also had a positive effect in the recovery of oil prices recently.
Some investors have now raised their expectations on further oil increases, while institutional analysts are now forecasting further increases. A report released by Goldman Sachs at the beginning of the month predicted that crude oil prices would continue climbing to $50 per barrel during the rest of the year and that they could hit $60 until the end of 2016.
The price of crude oil surpassed the $50 per barrel level for the first time since October 2015 and reached $50.19. Since mid-February when it was trading at a 13-year low of $26.04 per barrel, its price has increased by more than 90%. The ‘black gold’ moved with increases through last week and advanced by 2.8%, it ended Friday’s trading session at $49.56 per barrel.
The crude oil price ended the week lower than the $50 per barrel level. This price level is considered as an important one by investors and analysts worldwide. Some are trading by following the trend while others simply estimate that now the price has reached this important level they will keep rising. However, there are the ones who forecast that the increase of oil prices might push producers to sell and also accelerate output levels that would eventually push prices back to lower levels.
Although volatility levels might remain low, it will be interesting to see whether any moves above or below the $50 limit would trigger buy and sell positions respectively or the other way around.
http://www.wsj.com/articles/brent-crude-rises-above-50-a-barrel-1464229441
