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Canadian Wildfire Limits Oils Price Declines

By:
Barry Norman
Updated: May 6, 2016, 03:54 UTC

Oil prices continued to decline after soaring this week on worries about the wildfire effects on production. This is just a temporary effect but sparked a

Canadian Wildfire Limits Oils Price Declines

Oil prices continued to decline after soaring this week on worries about the wildfire effects on production. This is just a temporary effect but sparked a mini rally over the past days. WTI oil is trading at 44.18 down 14 cents while Brent oil is down 10 cents at 44.91. The disruptions helped offset the impact of a stronger dollar this week, which potentially reduces demand for crude as it makes dollar-traded imports more expensive for countries using other currencies. A massive fire around the Canadian oil city of Fort McMurray has forced the evacuation of all its residents and the closure of 690,000 barrels per day worth of production out of Canada’s total oil sands output of 2.2 million bpd. Adding to the production outage in Canada is an ongoing decline in U.S. output.

crude oil

Data by the U.S. Energy Information Administration (EIA) shows that U.S. crude oil output has fallen by 410,000 bpd this year, and by 800,000 bpd since mid-2015, as many producers succumb to a rout that saw prices tumble 70 percent between mid-2014 and early-2016.

Analysts said that the hits to North American output, combined with disruptions in Latin America, were contributing to a fast erosion of global oversupply that peaked as high as 2 million barrels’ bpd last year.

Some traders also pinned oil’s weakening to market intelligence firm Genscape’s report of a 1.35 million-barrels stockpile build at the Cushing, Oklahoma delivery hub for U.S. crude futures during the week to May 3. The Genscape report came on the heels of U.S. government data showing total crude stockpiles at record highs above 543 million barrels last week.

brent oil

On Thursday US crude oil prices initially jumped 5.0 per cent, with a huge wildfire near Canada’s oil sands region and escalating tensions in Libya stoking concerns among investors of a near-term shortage in supply, but pared gains on what traders said was likely profit-taking.

Firmer oil prices lifted shares of major European oil producers, while encouraging European earnings updates from firms including telecoms group BT and oil company Repsol helped prop up the stock market. The gains in European shares came after four days of losses.

The International Energy Agency said that a power struggle between supporters and opponents of Libyan government had cut up to 1 million barrels per day of crude production, more than the group’s previous estimate of as much as 750,000 barrels per day. Traders are also factoring in the possibility that political upheaval in other oil-rich countries could pinch global crude supplies.

“The spread of protests into other major oil producing nations such as Oman, Algeria and especially Saudi Arabia could keep this oil market on a boil for some time to come. Analysts said unrest in Libya was not enough to rally prices due to the huge world glut and increased production around the globe.

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