Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Rise in Petroleum Inventories Slows Recovery of Oil Prices




LONDON -- Petroleum inventories are on the rise again in the West, strangling the recovery in oil prices engineered in March by producers who cut supplies, analysts and dealers said Friday.


The analysts said the recovery had hit a wall of stocks in the United States market where inventories are near five-year highs.


"If Iraqi exports continue uninterrupted we see the stocks surplus growing," said Mike Barry at London-based Energy Market Consultancy.


A gap in UN-monitored exports from Iraq when it renews its oil-for-food exchange in early June could provide some relief before global demand picks up later in the year, said Barry.


Otherwise oil producers will have to deliver a second round of output reductions to stop prices sinking again.


"With stocks where they are we don't see any improved demand for crude until July at the earliest," said a senior trader at a major European oil company.


Oil's climb since early March from below $12 a barrel for benchmark Brent blend ran out of steam last week at $15.30. Brent was valued at $14.70 on Friday.


Nine-year low oil prices in March gave demand for petroleum products in Europe and the United States a welcome fillip, but the end-users' buying spree appears to have been short-lived.


Crude stocks in the United States, recently measured at 343 million barrels, have not been as high since late 1993, having risen nearly 40 million barrels since early January.


Stocks started building rapidly again in April, despite agreement among major OPEC and non-OPEC producers to withdraw 1.5 million barrels per day from the world's 75 million bpd market.


European crude oil stocks in April rose nearly seven million barrels to 425 million.


Producers say they may make further output cuts of some 500-600,000 bpd but will wait a month or so to measure the full impact of the first round of reductions which started in April.


OPEC producers, contributing the lion's share of output cuts, meet in Vienna on June 24, a prospect that will help provide a floor for oil prices.


"With OPEC just round the corner and the possibility of a few weeks without Iraqi oil I don't think prices will go a great deal lower," said a senior European trading executive.


"But on the other, fundamentals won't allow prices to go higher either -- we're looking at congestion at around current levels."


European traders are already assuming a short break in Iraqi oil exports at the beginning of June when the UN's oil-for-food exchange moves into a fourth six-month round.


"The feeling is that we won't see any Iraqi crude for between two and four weeks once this export phase ends," said one Iraqi oil buyer.


Iraq, at 1.6 million bpd, is already exporting at capacity and hence unable to take advantage of an expanded $4 billion sales target.


Iraq's proposed aid distribution plan for the new round, worked out with the UN in Baghdad, is already on its way to UN headquarters in New York, but negotiations with Security Council members over the details may prove time consuming.


Clouding the issue is discussion over a resolution allowing Iraq $300 million of spare parts which would allow Baghdad to increase capacity from its dilapidated export system.


Some diplomats think arguments over that resolution could spill over into the early-June transition from one phase of the export program to the next.


Meanwhile, better Asian demand might help soak up crude unwanted in Atlantic basin markets.


"West African barrels are being pulled into Asia," said Washington consultants Petroleum Finance. "A continuation of this trend will tighten Atlantic Basin fundamentals."