Global Economy
Brent oil benchmark over $68 a barrel - up almost 50% in 2015
By Michael Hennigan, Finfacts founder and editor
May 6, 2015 - 8:12 AM

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The North Sea Brent oil price benchmark that is responsible for about two-thirds of international oil futures trading has risen over $68 per barrel on Wednesday — a rise of almost 50% in 2015.

According to Bloomberg, Brent for June delivery is trading at $68.21 up 69 cents or 1.02% from a Tuesday closing of $67.52 a barrel on ICE Futures Europe, the highest since Dec. 5.

Meanwhile the West Texas Intermediate (WTI) US oil benchmark is trading at $61.34 Wednesday, up 94 cents or 1.56% from Tuesday. The Wall Street Journal says it's up 39% since St. Patrick’s Day (March 17), in a surge fueled by rising demand and the prospect of receding supplies. Investors have piled in on expectations that a sharp drop in drilling activity, an anticipated decline in U.S. crude production and rising demand will shrink a global glut of crude in coming months.

The US benchmark fell 59% from its 2014 high last June to its low on March 17.

The FT reports that Saudi Arabia, the world’s largest crude exporter, indicated on Tuesday that it has no plans to curb its own production, which has risen above 10m barrels per day, as it moves to expand its share of the market.

The newspaper says that the kingdom increased its own official selling prices (OSPs) to refineries in Europe and the US on Tuesday and held them steady to Asia — a move taken by traders as illustrating Saudi Arabia’s confidence in growing global demand.

Saudi Arabia’s oil minister, Ali al-Naimi, who led Opec’s decision to let prices fall last year to squeeze higher-cost producers, said on Tuesday “only Allah knows about oil prices”, demonstrating little concern that a recovery in the oil price could keep the US shale boom going.

The FT notes that some traders think the price rally may have come too fast, too soon. EOG Resources, the largest US shale producer, said this week that it would resume fracking wells in North Dakota and Texas if prices stabilise around $65 a barrel. The newspaper adds that the rally has also been powered by hedge funds and other big investors who have built up a record bet on Brent’s recovery, amassing the equivalent of more than 275m barrels of oil — or roughly three days of global demand

The Wall Street Journal says some analysts believe that Brent crude will rise by $15 or more a barrel by year-end from $68 today, while the US benchmark will rise the same amount from about $61 today. Others predict that Brent and WTI will end the year below current prices.

The Journal asked Phil Verleger Jr., an energy economist and consultant, and Paul Horsnell, head of commodities research at Standard Chartered PLC, to explain their vastly differing predictions for oil prices.

Verleger says Brent will probably end the year around $50 a barrel and West Texas Intermediate about $5 below Brent.

"I see global inventories growing continually to record levels, and inventories are the most important real determinant of prices in the short run. When inventories are very high, we have seen very low prices in the past. The elephant in the room today is just this continual growth of stockpiles — most forecasts show a global buildup in stocks of around two million barrels a day this quarter and next — most of which is occurring right now in the US."

Horsnell says: "Demand tends to be at a maximum in the third quarter, particularly demand in power generation for air-conditioning in emerging markets. That will take supply back into balance with demand, and then into deficit in the second half.

So we see Brent pushing above $80 as we get into the second half of the year, and WTI $6 to $8 lower than Brent."

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