The Organization of the Petroleum Exporting Countries (OPEC) was founded in 1960 and now has 13 members as of 2017, but their ability to control the volatility of oil prices has never quite died down. On Tuesday, oil prices rose, but the market remained fragile with concerns coming from increasing U.S. crude output and decreasing demand for oil owing to preference of alternative energy that are environment friendly.
Demand for Crude Continues to Fall
Monthly reports on supply and demand from OPEC and this week’s U.S. data on crude production highlights that global crude inventories continue to fall and unless the wavering demand growth does not increment, the pattern will continue. The U.S. gasoline stocks are strong and the trend of electric vehicles is growing. In addition to that, U.S. output has grown about 10% since mid-2016 and is closing in on the output of Saudi Arabia and Russia. These are some of the factors resulting in reduced demand from a highly profitable market, hitting its lowest mark in last three years. Drop in commodity imports and weakening manufacturing activity in China is another restraint impacting the demand for crude oil.
Real Challenge to Drive Stockpiles Down Persists
According to the chief market strategist at futures brokerage AxiTrader, Greg McKenna, the biggest challenge for OPEC is to reduce the crude oil stockpiles to a level from where it sustainably rises. However, the falling demand this year is eating into the refining margins. In the physical market, barrels of North Sea crude were available at their lowest cost since 2015. Any efforts by OPEC to rebalance the market can only see the day of light if the oversupply is curtailed, which has not been the case for over two years.