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Oil: reserves are growing, production is increasing

Oil: reserves are growing, production is increasing

The price of oil fell during volatile trading on Thursday after the announcement of news about an increase in stocks of fuel products in the United States.

August futures for Brent crude oil on the London ICE Futures Exchange by 16:15 London time on Thursday were at $108.87 per barrel, which is 3.18% lower than the previous trading day's final price. On Wednesday, by the end of the session, these contracts fell by 1.5% to $116.26 per barrel. By the way, the validity of August futures expires with the closing of trading today, June 30. September contracts, which are traded most actively, increased in price by 0.11%, to $112.57 per barrel.

WTI oil futures for August on the electronic trading of the New York Mercantile Exchange at the time of preparation of the material amounted to $106.05 per barrel - 3.43% lower than the final price of yesterday. By the close of the market on Wednesday, the value of these contracts fell by 1.8% to the level of $109.78.

The US Department of Energy published statistical data on Wednesday, according to which oil reserves in the country decreased last week (from June 20 to June 24) by 2.76 million barrels, to the level of 415.57 million barrels. Gasoline inventories increased by 2.64 million barrels, and distillates – by 2.56 million. By the way, the jump in gasoline stocks is explained by the fact that U.S. refineries are operating at a capacity of more than 95.0%. It is worth saying that this is the highest figure for this time of year in the last four years.

Prices could have crept down even more significantly, but this was prevented by regular interruptions in oil supplies. Thus, the supply of raw materials from Libya from two key eastern ports has been suspended, while production in Ecuador has noticeably decreased due to the ongoing protests.

Meanwhile, the main signals for the bidders are not signals about a possible reduction in the supply of oil on the world market, which have become increasingly obvious in recent months, but a fairly high probability of a global economic downturn, which will necessarily and significantly reduce the existing demand for fuel. Thus, the tightening of monetary policy by the world's largest central banks, which are trying by all means to extinguish the raging inflation in their countries, has already put noticeable pressure on the oil market in June.

Today, traders are also focused on the meeting of ministers of OPEC+ member states, as a result of which the parties agreed on actions for August - to increase oil production by 648,000 barrels.

Russian Deputy Prime Minister Alexander Novak said that this decision will help balance the market.

It is worth recalling that last month the cartel somewhat surprised the market by already raising quotas more than experts expected. Most of the OPEC+ member countries have already exhausted all reserve production capacities. With the exception, however, of Saudi Arabia, the UAE and Russia.

Russia is still relentlessly increasing production, trying to fully satisfy (with a good discount) the growing demand from India and China. China is currently laying the groundwork for obtaining an increasing share of Russian crude oil with significant discounts.

China has already purchased record volumes in Russia in May, and ship and port tracking data collected by Refinitiv Oil Research shows an increase in June as well.

Russian oil is sold at a noticeable discount in relation to world standards, for example, Brent.

Moscow is taking these measures, as it seeks to painlessly switch its exports from Europe to Asia after Western European countries intend to stop buying oil from Russia after February 24.

According to the US news agency Platts, Russia produced an average of 9.29 million barrels per day in May, and this figure was expected to increase by 600,000 barrels in June. But even such a wide step is unlikely to select the entire quota of the country.

The IEA expects that by December, oil production in Russia will fall by 2 million barrels due to sanctions. However, it is worth considering the growing appetites of India and China, so this forecast is unlikely to come true.

Saudi Aramco, the national oil company of Saudi Arabia, in turn, is capable of producing 12 million barrels of oil per day, but in this case the risk of causing serious damage to its fields increases. The country's authorities cannot allow this in any way, because then during any crisis the country will not be able to fulfill its obligations on supplies. That is why it is not worth expecting Saudi Arabia to produce more than 11 million barrels per day in the near future.

At the moment, the country produces 10.45 million barrels every day. However, in November 2018, this figure still exceeded 11.01 million barrels, and in April and May of the pandemic 2020, it was approaching 12 million barrels at all.

According to the results of their last meeting, OPEC+ plans suggest an increase in Saudi Arabia's quota in August to 11 million barrels. But even if the country decides to fully choose the quota, only 550,000 additional barrels per day will enter the market.

As for the UAE, the country produced an average of 3.03 million barrels of oil per day in May, and their quota increased to 3.17 million in August. The maximum daily production capacity in the country is 4 million barrels, but the UAE has never produced such volumes of oil. It is obvious that the Emirates, like Saudi Arabia, are not going to lose their reserve capacity in order to be able to compensate for any unplanned interruptions.

Thus, the OPEC+ member countries are unlikely to be helped by an increase in quotas in a situation where a real increase in production is not expected. In addition, Saudi Arabia and the UAE believe that the increase in the supply of raw materials will not affect prices, as the key point is still the ongoing military conflict on the territory of Ukraine.

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Oil: reserves are growing, production is increasing

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