Published On: Mon, Apr 25th, 2016

Oil levels down as the prices soar

The severe drop in the oil prices at the end of 2015 which continued into the mid of January 2016 caused the Gulf economies to panic. The investors were worried about their investments in the oil companies. The global economies, as well as the currency market, became volatile for a period during the oil price fall. Now, although the oil prices are beyond $40, the price still remains volatile. The prices would not have shot up without artificial intervention. Global heads imposed a halt on oil production in the Gulf. Even when most Gulf economies had lowered production, Iran kept its oil pump running hard. This scenario caused Saudi to keep its oil rig running unless and until Iran agreed to halt its production, complying with the international decisions.

US oil stocks are still on the decline, although once in a while there is a positive growth, as was observed on Monday when Brent Crude jumped up some point while the US oil output remained low. Many oil rigs are being closed as the oil producers cannot really make much profit by keeping them on.

Photo/Tech collector via wikimedia commons

Photo/Tech collector via wikimedia commons

What is happening in the global oil market is a game of demand and supply. The supply has been cut while the demand has remained unchanged. Though the refineries keep a stock of oil to last for the coming months in the case of oil shortage, something unexpected happened. The oil reserves started going dry as the 3-month reserve comes to a nearing end. The West Texas intermediate crude rose by 35% last week, but then the next day, news came out indicating a drop in the levels by 4.94 million barrels in the US oil reserve. That itself was a major push towards the soaring oil price.

The production has not reached November 2014 levels as indicated by the Energy Information Administration. US oil output keeps dipping this year, which is a result of a massive $100 billion spending cut in 2015. Active oil rigs have now reached a 2008-2009 figure. These figures can be verified by viewing long-term graphs if you the visit CMC markets trading platform.

The OPEC meeting in Qatar on April 17 indicates a complete oil production freeze. Analysts say that this freeze would unlikely happen or change the scenario much. While the talks of production freeze continue, Iraq has joined in the oil production and export business in full swing. It pumped out a record 4.43 million barrels per day during the month of January and had been rising ever since, with March seeing a production of slightly less, 3.81 million barrels per day. To join hands, Russian oil output remains a whopping 40.5 million barrels per day, which is part of the predictions.

Thus, it has become quite apparent that even when the Gulf and the US oil output remains down, there are other players that are working much harder and balancing the deficit, which is resulting in a slow recovery of the oil prices.

It will only become clear after the Qatar OPEC meet on April 17.

Guest Author: Mariia Lvovych

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