6 Issues Whipsawing Oil Prices As Market Uncertainty Persists
Ellen Wald | Jul 09, 2020 03:54
There continues to be significant uncertainty in the oil markets as the world recovers from the coronavirus pandemic. It is still unclear how the demand recovery will look or when it may be fully restored.
Production shows signs of increasing in the near future, but there are a few forces holding it back. Refinery and pipeline issues, especially in the U.S., add to the uncertainties.
Here are six issues pulling the price of oil in one direction or the other:
1. Global Oil Demand Growth Disappoints
The EIA now compensate for their faults by slashing its output an extra 910,000 bpd in June. Russia’s production fell to 8.5 million bpd.
OPEC production can be expected to climb in July, because Saudi Arabia plans to lift production to meet its 8.49 million bpd quota. We should also anticipate OPEC+ will go ahead with its plan to hike production by 2 million bpd in August, in the hopes that this will be offset, in part, by cuts from member countries that have so far failed to cut.
This seems like optimistic talk from OPEC+. Assuming OPEC+ sees a net increase in production in August, this could cause global inventories to rise. Demand may not be ready yet for more oil on the market in the second half of this summer.
6. Court Ruling Could Curb Oil Production From Bakken
A judge for the U.S. District Court of the District of Columbia ruled this week that the Dakota Access Pipeline, owned by Energy Transfer (NYSE:ET), must cease operations and be emptied of oil by August 5. This could be a major setback for the beleaguered oil industry in the Bakken region because the pipeline carries 557,000 bpd of oil from North Dakota to Illinois.
However, the case is not over yet, and the ruling is likely not the final word on the subject. In fact, Energy Transfer is continuing to accept nominations for oil for the pipeline, because it believes the judge did not have the authority to order the company to halt operations.
The company plans to appeal the decision to the Supreme Court, if necessary. Meanwhile, producers are preparing to ship oil via rail car if the pipeline shuts down. The logistics necessary to shift to rail transportation may prevent a seamless transition and oil production is likely to slow if the pipeline shutdown goes through.
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