A specialized international report confirmed that the impact of the turmoil of financial markets in oil prices was significant, especially because the prices have risen drastically during the past two months. As a result of that, there are rising fears that prices may rebound/fall sharply.
According to the report "Oil Price", crude oil prices fell about 4 percent from the late highs last month, and fell sharply on Friday and Monday. It pointed out that the losses were largely due to the financial turmoil around the world.
The International Report added, "the decline in prices has had a big impact on energy companies. For example, ExxonMobil and Chevron lost more than 10 percent during these two days. Barclays' declines also led to a strong rating downgrade credit to ExxonMobil."
The report said losses were much worse due to the fourth-quarter earnings disappointing reports that were issued by the major oil companies. It noted that the fundamentals of the oil market were good and strong, but some are afraid of the beginning of the so-called risk of disintegration of oil prices.
"Oil Price" pointed out that hedge funds and others, which had set a record on net capital gains in oil futures, began to decline finally. It pointed out that last week was the first time in six weeks in which investors reduce expectations of the rising prices. The international report mentioned that investors have begun to ignore the rising price bets even before the recent turmoil in the market. However, the collapse of capital markets on a larger scale increased the risk of activity of the sale movement, which had an impact on the decline in prices of crude oil. It pointed out that speculative activities in the Brent and West Texas Intermediate regions had reached a record level in the past week.
Andre Gross, director of Germany's MMIC for oil consultancy in Germany, explained to the Economist that the level of stocks remains the most influential component of crude prices and that the decline in inventories supports higher prices. "OPEC and its independent partners have taken into consideration the need to treat surplus stocks as quickly as possible. They have already made much progress as the surplus is nearing an end to the average level of stocks in five years," Gross said.
Gross declares that the weakness of demand is a temporary phase, and that the dollar exchange rate stopped the previous upward climb. He pointed out that the possibility of resuming price gains in the coming period is significant, especially because of the effectiveness of the growing OPEC deal and the recovery of the demand by the second quarter of the year.
Robert Stehrer (Director of the Vienna International Institute for Economic Studies) said to the Economist, "the US production continues to flow rapidly and heavily in the markets. So this year is likely going to break the level of 11 million barrels per day. In addition, the platforms have already increased at the highest pace since last June, which means that the current price environment is very fertile for American producers." Stehrer predicted that the flood of the US supplies would contribute to pressure again at the level of prices to return around the level of $ 60 a barrel, despite the adherence of "OPEC" and the Independents very well at the level of productivity cuts throughout the year. He pointed out that the return of prices to decline would reduce pressure on the producers to back down from the plan to reduce production, which began since the beginning of last year.
According to Arturas Vifras, the investment manager of Victoria Bank in the state of Moldova, the prices would rise sharply unless the investment wheel moves further and fully recovers from the previous stalemate to keep pace with the steady and rapid growth in demand, particularly in emerging and developing economies. He added to the Economist "Russia specifically focused on increasing investments in the energy sector (especially oil and gas) specifically in the markets of Eastern Europe." He stated that the recovery of prices led to the harvesting of major Russian companies such as Rosneft, Gazprom of net annual profit of over 26 percent.
On the other hand, oil prices were boosted by a report that the US crude stocks fell last week, although analysts warn about the increased US production and the lower demand due to seasonal factors that could negatively affect prices.
According to "Reuters", global Brent Crude futures reached $ 67.39 a barrel, up 53 cents, or 0.8 percent from the previous closing. While the US West Texas Intermediate crude futures was $ 63.85 a barrel, up 46 cents, or 0.7 percent above last settlement.
Traders say that the market has received support from the report by the American Petroleum Institute, which said that US crude oil inventories fell last week against analysts' expectations, while gasoline stocks fell and distillate stocks rose.
The US Petroleum Institute data showed that crude stocks fell 1.1 million barrels in the week ending February 2 to reach 418.4 million barrels, while analysts had forecast an increase of 3.2 million barrels.
Stocks in the delivery center in Cushing, Oklahoma, fell 633,000 barrels. The data showed that gasoline stocks fell 227 thousand barrels, while analysts polled forecast an increase of 459 thousand barrels. The Petroleum Institute confirms distillate stocks (including diesel and heating oil) jumped by 4.6 million barrels, while 1.4 million barrels were expected to fall. The US oil imports last week fell 116 thousand barrels a day To 7.8 million barrels per day.
OPEC and Russia have been cutting production since last year in order to cut supplies and boost prices. The cuts are set to continue in 2018; however, analysts warn of the risk of falling oil prices due to the impact of the financial markets and the weak demand due to seasonal factors.
Demand is expected to slow in the short term due to refinery maintenance scheduled for the end of the winter season in the hemisphere. Though, the US crude production has already risen 18 percent to about 10 million barrels per day.