• Saturday, July 13, 2024
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BusinessDay

Oil rises on record US rig slump

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Crude oil prices rose on Monday as investors shrugged off bearish Chinese data and news of a US refinery strike and focused on a falling US rig count that signalled lower production down the line.

Brent crude futures were up $1.04 at $54.03 a barrel, after leaping as high as $55.62 and dipping as low as $51.41, as the bulls battled with the bears. US crude was up 48 cents at $48.72 a barrel, after touching an intraday high of $50.56 and slumping to $46.67 in Asian trading.

Both contracts had rallied about 8 percent on Friday, fueled by month-end short-covering and a record weekly drop in the number of US oil rigs employed, according to industry data from Baker Hughes. The count is now down 24 percent from its October peak.

On Sunday, workers at nine US refineries and chemical plants went on strike in an effort to pressure oil companies to agree to a new national contract.

There is uncertainty in the industry over oil prices; how long the prices will remain around US$50/bbl and, more crucially, what prices might look like in the future as these uncertainties weigh heavily on offshore operators and contractors globally.

With predictions swinging wildly between BP CEO Bob Dudley’s prediction that prices will remain low for three years and Eni CEO Claudio Descalzi warning of $200/bbl in a few years, uncertainty is the name of the day.

According to industry experts, the fall in oil price has been driven by weaker demand, very few geopolitical events and additional supplies, creating ‘a perfect storm,’ with speculators, hedge-fund driven, driving oil prices down to today’s levels. The problem is about over supply, unlike previous corrections in the last 15 years. 1986 is probably the last time we had a wall of supply hitting the market.

Saudi Arabia, which could potentially influence the market by reducing production, seems more concerned about protecting long-term demand, not just for itself but for oil per se, as efficiencies, climate change and renewables increase.