Oil prices had a good run.
But the brief bump we saw in prices several weeks ago is over. Prices have now returned to levels not seen in more than a year. Yesterday London-traded Brent crude futures fell more than 2% yesterday to $US102, about where we were on July 1, 2013.
In a new note, TD Securities’ Bart Melek writes that risks to global oil supply have almost entirely vanished.
“As each geopolitical event created supply risk and corresponding price support, some set of data or information would debunk supply concerns in due course.”
First, investors have realised that, for now, the Islamic State’s insurgency in Iraq is focused in the country’s north, while Iraqi exporting and production capacities are mainly concentrated in the south.
Meanwhile, Libyan production, which for months has seen outages of one form or another as a result of rebel fighting, has come back, and all but one oil port is now open. “Even though you have fighting in Tripoli, Libya seems to be able to provide volumes higher than the previous month’s,” Alexander Poegl, an analyst at JBC Energy GmbH in Vienna, told Bloomberg. Here’s a recent chart from the IEA showing it’s begun to creep upward:
As for the West’s sanctions against Russia, they have been tailored around fossil fuel production tripwires, focused instead on limiting access to capital markets.
And the conflict Israel-Palestine conflict shows no sign of spilling over Gaza, Melek said.
We’ve also recently explained how American shale production as yet shows no signs of slowing, while demand growth in Europe has flatlined, both of which have further weighed on prices.
“The general theme of geopolitical supply-risk and rapidly growing demand due to expanding/rebounding economies is starting to fade and investors have recently come to focus on the more apparent supply-demand looseness picture,” Melek said.
Brent futures were actually up 0.5% Friday. New York-traded West Texas Intermediate contracts were also higher.
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