Brent crude prices plunged to a 13-month low on Aug. 12, after the International Energy Agency released a monthly report showing rising production and falling demand.
US Brent Stocks Fall
Investors involved in crude oil trading also processed reports showing that both production and inventories of crude have been rising in the U.S., Reuters reported. Reports from industry organization the American Petroleum Institute showed that in the week ending Aug. 8, the nation’s crude inventories increased by 229,000 barrels to 364.2 million, far surpassing the analyst estimates of a 2-million-barrel decline.
The organization also stated that during the same period, Cushing, Oklahoma’s delivery hub saw its crude stocks rise by 469,000, according to the news source. In addition, separate figures from the Energy Information Administration showed that the country’s crude production averaged 8.5 million barrels per day during the week ending Aug. 8, the most since April 1987.
Investors participating in crude oil trading might benefit from knowing about this robust price decline, as well as the reports that surrounded this decline.
Brent Prices Plunge
September contracts for brent dropped 1.6 percent to $103.02 a barrel on the London-based ICE Futures Europe exchange, which marked the lowest closing value since July 1, 2013, according to Bloomberg.
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This decline happened amid robust transaction activity, as the volume of all futures trading surged 43 percent above the 100-day average by 3:26 p.m, the media outlet reported. Data provided by Bloomberg showed that between 12:58 p.m. and 1 p.m., market participants involved in crude oil trading exchange the September brent contract more than 3,100.
September WTI also moved lower, falling 0.7 percent to $97.37 a barrel on the New York Mercantile Exchange, while volume surpassed the 100-day average by 2.4 percent, according to the news source.
Market Evaluates IEA Report
Brent and WTI contracts moved lower in value after the IEA’s August Oil Market Report cut its 2014 global growth demand prediction to 1 million barrels per day, noting the International Monetary Fund’s lackluster economic outlook and second-quarter deliveries that lagged expectations.
In addition to forecasting falling demand, the organization estimated that the Organization of Petroleum Exporting Countries’ oil supply rose to a five-month high of 300,000 barrels per day in July. While production declined in Nigeria, Iran and Iraq, the beginning of a recovery in Libya combined with rising activity in Saudi Arabia to create a net gain in output.
Global oil supply also moved higher during the month, with the IEA report showing that this output rose by 93 million barrels per day, as the increase in OPEC supply exceeded the non-OPEC decline.
The Report ‘knocked the market pretty hard’
Bill Baruch, a senior market strategist at Iitrader.com in Chicago, commented on the report when speaking with Bloomberg.
“The IEA report knocked the market pretty hard today,” Baruch told the news source. “Demand worry has really been moving the market. There is really no reason for WTI to push above $100 unless there is a major supply disruption.”
Ankit Pahuja, a commodity strategist at investment bank ANZ, also weighed in on the situation, telling Reuters that substantial inventories in the Atlantic Basin are holding down price increases.
German Sentiment Impacts Brent Crude
In addition to the IEA report, another factor that potentially impacted the brent crude market was a German survey showing that investor and analyst sentiment recently fell to its lowest level in more than 1.5 years, according to the media outlet. This data could mean that Europe’s largest economy will soon face headwinds.
“I think the German investor confidence and IEA reports both highlight the recent market theme about demand being challenged,” John Kilduff, partner at Again Capital LLC in New York, told the news source.
Middle Eastern Conflict
Amid the IEA report and the survey showing lackluster confidence in Europe’s largest economy, turmoil in the Middle East is doing little to affect the brent crude oil market, several experts have stated, according to Bloomberg.
Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd. in London, expressed this sentiment in a report, the news source reported. He emphasized that inventories are abundant, and are not being undermined by geopolitical events.
Concerns About Russia Sanctions
However, the IEA warned that the sanctions that European and U.S. governments have placed on Russia are expected to undermine the Eastern European nation’s demand, Reuters reported.
“The market may have expected geopolitical issues to impact production, but the larger issue is the conflict between Russia and Ukraine has had an impact on the Russia economic picture and also on the European economic picture,” Michael Cohen, an analyst at Barclays Plc. in New York, told Bloomberg. “Both European and Russian demand growth will be impacted by the conflict.”
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