A report by Barron states that reducing supply of oil from Organization of Petroleum Exporting Countries (OPEC) could raise the price of oil by about US$60 per barrel. This rise will be a result of growing demand for oil across the world. The report states that oil prices were already at US$100. The decline in recent weeks was just about US$44 for Brent crude, an international standard. The author of the report states that the phenomenal rise in the demand for oil will be a result of emerging economies in Asia Pacific.
India and China Remain Key Contributors to Oil Demand
The soaring demand for oil for transportation, production, and manufacturing activities is likely to have major impact on the overall market and the price of oil. As of 2017, the demand was oil has been recorded at 97.3 million barrels a day, which is a significant rise from 96 million in 2016. India and China are estimated to be key contributors to the overall market. To make matters worse, the supply of oil has dropped by about 0.7 million barrels a day is expected to make a serious spike in the prices of oil by the end of fourth quarter of this year.
The start of this year saw a significant decline in the oil inventories and the trend is likely to continue all throughout the year. The rise in crude oil prices is expected to be about US$60 and not more with an exception of any major political disruptions from oil-producing countries.
The Organization of the Petroleum Exporting Countries (OPEC) has been trying to tighten the supply chain, although the U.S. drilling continues to hinder the efforts. Result? Oil prices plunged on Monday, which means the trading activities will remain subdued at the start of the new week, which marks public holidays in the U.S., Britain, and China.
While U.S. West Texas Intermediate (WTI) crude futures were trading at $49.63 per barrel on Monday at 0253 GMT, down 0.3 percent, Brent Crude futures were down 15 percent, trading at $52.00 per barrel.
Pledge to Cut Production Failing to Meet Expectations
Those who are a part of OPEC, had made an agreement last week with non-OPEC producers to reduce the production by nearly 1.8 million barrels per day up to the end of the first quarter of next year (2018). However, the agreement does not seem to be bearing as many fruits as investors had anticipated initially, as these efforts have failed to increment the oil prices much beyond $50 per barrel.
OPEC’s Success depends on the U.S.
The U.S. have opted to stay out of OPEC, and the production has escalated 10 percent since mid-2016, touching the levels of top oil producing countries such as Saudi Arabia and Russia. U.S. drillers continue to add to their rigs for the 19th straight week, up to 722 now, and the current capacity is 9.3 million bpd.
Most of the U.S. production is owing to growing number of onshore resources, also called as shale oil fields. As per the analysts, reduction in bloated global fuel inventories is one of the key to reining in current oversupply.