Oil prices down, but firm despite Opec uncertainty and US threat

Oil prices eased from their new-found peaks amidst market uncertainty over the ability of the Organisation of Petroleum Exporting Countries (Opec) to keep production in check on the back of US threat to raise production and keep markets well supplied.

But, on Tuesday, prices looked like firming up again on concerns of falling production from Venezuela and state firm PDVSA considering declaring force majeure on some exports. This caused a Brent prices to rally to nearly $80 a barrel.
Brent crude LCOc1 rose 78 cents to $76.16 a barrel by 0645 GMT after dropping to its lowest since 8 May. West Texas Intermediate (WTI) crude futures CLc1 were up 33 cents at $65.85 a barrel, having touched a near two-month low on Tuesday.
Western Canadian Select (WCS), an oil marker that tracks heavy crude in Canada, surged this week after Enbridge said it wouldn’t implement a new procedure to prevent shippers from claiming more space than they can use on a vital pipeline that runs to the US. WCS jumped more than $12 per barrel after the announcement, putting the discount to WTI at just $13 per barrel.
Oil traders, meanwhile, continued to voice concern about a possible increase in Opec oil production after the US asked Opec kingpin Saudi Arabia to boost oil production by 1 billion barrels per day.
While there seems to be an agreement between Saudi Arabia and Russia to keep oil output under check, Saudi Arabia cannot ignore US demand, considering the Middle East political equations.
The Middle East, especially the Gulf oil producers are still heavily dependent on oil and the series of deals in the last few months indicate the growing focus on petrochemicals from state-owned oil giants, according to Bloomberg.
Oil demand is expected to remain high for a longer time, according to IE, which said petrochemicals will represent one of the largest sources of oil demand growth over the next few decades, outpacing the transportation sector.
Also, there is a refining option for producers, which, according to the Gulf Petrochemicals & Chemicals Association, offers $15 per barrel on refining and an additional $30 per barrel on using fuels to produce petrochemicals, according to Bloomberg.
While Opec seems to have achieved its aim to drain OECD inventories below the five-year average, they are yet to set their sights on China’s oil inventories, which have been on the rise. Precise data on Chinese inventories, however, is hard to come by. Ursa Space Systems, an oil data company, estimates that Chinese inventories have climbed by 130 million barrels over the past year in China.
Oil market is tracking the overall energy scenario to determine oil prices. These may include falling fossil fuel consumption for electricity generation in the US that has declined to 22.5 quadrillion BTUs in 2017, the lowest level since 1994. Besides there has been a rise in the use of natural gas and renewables.