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Oil expected to drop to $40 a barrel again

After oil prices plummeted on Wednesday, July 27, the U.S. Energy Information Administration (EIA) sent shockwaves through the market by suggesting that oil markets are not as near to ‘balance’ as was previously thought.

The EIA divulged a number of troubling signs for the oil markets. Firstly, it revealed that crude oil inventories increased by a massive 1.7 million barrels in the week ending July 22 – the first such increase to take place in the past two months.

The Administration also revealed that oil stocks were up 521.1 million barrels, and that gasoline inventories were also up by 0.5 million barrels in the same week – the fifth increase in the last six weeks – quashing hopes that the summer driving season would see a marked decrease in gasoline inventories.

In fact, according to Citigroup, global gasoline inventories now add up to more than 500 million barrels.

These figures were a huge surprise to all involved, as analysts had broadly expected there to be a drawdown in crude stocks. As a result, by midday on Wednesday, Brent was down by over 3%, and West Texas Intermediate had dropped by 2.5%, getting closer to the $40 (£30.39) per barrel mark – a level last seen three months ago.

While the news may be positive for motorists and other oil consumers, it will be a blow to oil giants like Royal Dutch Shell, the maker of Shell Gadus S2 V100 3, as they seek to maintain profit levels with oil stocks at such low prices.

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