On Thursday oil prices soared hitting new 2016 highs. At the start of the US trading session, both major oil benchmarks made a major milestone, hitting
On Thursday oil prices soared hitting new 2016 highs. At the start of the US trading session, both major oil benchmarks made a major milestone, hitting $50 for the first time this year. July West Texas Intermediate crude oil rallied to a session high of $50.13 a barrel and Brent crude oil futures rallied to a high of $50.49 a barrel. WTI crude has seen the biggest gain as it has rallied more than 92% since hitting its lows in early February; at the same time Brent crude is up almost 56% since February.
It is the highest crude price for seven months, but, according to Commerzbank, oil at this level makes shale oil production lucrative again in many places, which could dampen the fall in production in the coming months.
The oil market has seen major supply disruptions recently. An uncontrollable wildfire in northern Alberta has reduced Canada’s oil production by more than 1 million barrels per day for the last two weeks. Nigeria has also seen is crude production fall by 800,000 barrels per day as a result of terrorist attacks on the nation’s pipelines.
Many market players believe the increased oil prices could lead producers, especially among shale companies in the US, to revive operations that were closed in recent years.
CMC Markets chief market analyst Ric Spooner told the news agency: “Certainly ($50) is a psychological barrier. There is a momentum, people will try and push it up over that.”
Oil prices are set to increase further following a proposed meeting of the Organization of the Petroleum Exporting Countries on 2 June in Vienna, Austria.
A Streets Report said:
Don’t get too excited about oil’s $50 milestone Thursday. While both Brent and West Texas Intermediate crossed $50 a barrel, next week’s OPEC meeting could break the rally.
“Iran is determined to ramp up productions to its pre-sanction levels,” says Jasper Lawler, a markets strategist with CMC Markets, adding that Saudi Arabia won’t agree to a production freeze unless Iran participates.
“I think we can expect [no production freeze] from this meeting and the result from the past three meetings has been a big dive in oil prices.”
During OPEC’s previous meeting back on April 17, no production deal was reached amid tensions between Iran and Saudi Arabia. Iran officials didn’t attend April’s meeting.
Lawler says if prices don’t nosedive following the June 2 OPEC meeting, that would represent a turning point for the closely watched commodity.
West Texas Intermediate is up 21% since the start of the year.
A meeting of OPEC countries on June 2 in Vienna to discuss the oil market added further support. However, the recent rise in oil prices and friction between key members Saudi Arabia and Iran mean a coordinated effort to intervene to support prices is slim.
“A (production) freeze remains a tail risk, but a very small one. The bigger risk is that following the meeting, Saudi will increase production to meet rising summer domestic demand, to preserve market share in its oil wars with Iran and Iraq,” David Hufton, head of PVM Oil brokers, was quoted as saying.
“These are all compelling reasons to expect Saudi production to rise over the summer months.”