Looking at figures for the week, Brent crude has stood practically on the spot. The trade range is gradually shifting towards $48-49.5 per barrel. On 30th January, North Sea Oil was trading at the $48.8 a barrel mark. The price of WTI including delivery in March decreased steadily and at close on 29th January in New York it was $43.56 a barrel. As we expected, the spread reduction between the cost of both benchmark oil grades was only temporary. A fall in the cost of Texan oil is continuing due to the growth in reserves stored in the US. According to the Energy Information Agency, the cumulative oil reserves of last week grew by 8.87 million barrels, whilst petrol reserves decreased by 2.58 million barrels. Although, the fall in price of Texan oil is also gradually slowing.
If we take a look at the market as a whole, it gives the impression that quotes have bottomed out and the consolidation period has arrived. However, there are no reasons to suggest a global reversal, just as there are no reasons for further falls in the price. Saudi Arabia isn’t planning on reducing their output and neither are other Middle Eastern countries. The USA hasn’t commented on the situation at all. In the meanwhile, the American fracking business is sounding the alarm and sounding it with them are their financiers, the banks. For now there’s not too much to be concerned about, but the longer the prices stay at their current level, the more the frackers will suffer. If the market situation puts American banks under threat, the US government will have to step in.
Other than this, there is another wave of conflict approaching the Middle East. After the act of terrorism in Paris, western countries are gearing up to aggress and escalate tensions on the back of the supposed fight against terrorism. New attacks on a number of oil-exporting Arab countries will hamper production and adversely affect the supply of raw materials on the market.
It is worth, however, to consider these events within a broader perspective; with this a price reversal will not happen today or tomorrow, so next week oil prices will open at the same price level.
WTI (daily graph)