Are We Witnessing A Global Oil Glut – Crude Oil Drops and Brent Oil Climbs

Crude oil climbed on Wednesday to trade at 94.36 and remains flat this morning as traders take a moment to evaluate their initial response to the week EIA inventory report which showed a significant drop in crude oil stocks. As per the US Energy Department (EIA) report, US crude oil inventories declined more than expected by 7.7 million barrels to 350.20 million barrels for the week ending on 10th January 2014. Gasoline stocks gained more than estimated by 6.2 million barrels to 223.10 million barrels and whereas distillate stockpiles plunged by 1.02 million barrels to 124.0 million barrels for the last week. Light Sweet crude oil prices gained around 1.7 percent yesterday on the back of more than expected decline in US crude oil inventories which is at the lowest level in last 22 months. Crude supplies have slipped around 41.2 million barrels since 22nd Nov’13 the largest seven week data since 1982 supported an upside in the prices. Further, rise in total fuel consumption by 3.5 percent to 18.9 million barrels a day, the first rise in last four weeks coupled with estimates of rise in demand for the fuel after World Bank raising the global growth forecast acted as a positive factor. However, sharp upside in the prices was restricted due to increase in US crude production which rose by 14,000 barrels a day to 8.16 million barrels the most since 1988. Additionally, decline in refinery operating capacity by 2.3 percent to 90 percent capped sharp gains in the prices.

Global production continues to climb with Libya slowly returning to full production and the easing of sanctions against Iran as Iraq produces record levels. Brent oil declined by 18 cents this morning to trade at 106.00 with the spread between the two oils holding under $12.00 which is significantly low. Libyan authorities were in negotiations on Wednesday with protesters threatening to restart a blockade of the southern El Sharara oilfield. Middle Eastern oil producers face a mountain of challenges in the next two decades as Russia and South America strive to replicate the U.S. shale oil boom. Iraqi Kurdish ministers walked out of a cabinet session on Wednesday in protest at the country’s draft 2014 budget, further complicating a feud over the autonomous region’s plans to export crude via a new pipeline to Turkey. Diplomats from Iran and a group of world powers are likely to begin talks in February on a final settlement to a long dispute over the Islamic republic’s nuclear program. Oil prices have been supported by Western sanctions against Iran. Under a preliminary accord that goes into effect on Jan. 20, Iran’s oil exports are to hold at current levels of about 1 million barrels per day.  A possible deal between Russia and Iran securing an oil-for-goods swap could generate sanctions against parties involved in such an agreement, a White House spokesman said Wednesday.

Natural gas is trade at 4.362 up by 31 points after a sell off on Wednesday sent prices falling as traders booked profits. Natural gas futures slipped on Wednesday as investors took profits made ahead of data expected to show record draw-downs in storage after last week’s severe cold.