Oil Falls 7% in Weekly Trade

Oil Falls 7% in Weekly TradeOil Falls 7% in Weekly Trade

The recent oil selloff was sparked by growing concerns about global energy demand following a shallow reduction in American oil reserves, but the market appears ripe for a bounce back next week on the fundamentals.

The crude oil future’s market cratered this week suffering a weekly loss of more than 7%—the largest retreat in the commodity’s value since early February, Sputnik reported.

The massive selloff this week was triggered by a slower than expected draw on US oil inventories with market analysts expecting a reduction of 6 million barrels, but the US Energy Information Administration reported that only 2.2 million barrels of reserves were dipped into in June, indicating a breakdown in demand.

A full-blown collapse in oil future was contained by continued geopolitical issues in Nigeria that reduced market expectations on the country’s production capabilities and a substantial drop-off in US shale oil output due to a wave of bankruptcies in the wake of February’s market crash.   

The EIA estimates that US shale oil production fell by 194,000 barrels per day last week to just 8.43 million barrels of oil daily. If this figure proves to be reliable, it would mean that US output is down about 1.2 million barrels of oil per day from its peak in April 2015. In Nigeria, the country’s oil minister in late June said the country had brought oil production back from 1.4 mb/d to 1.9 mb/d with hopes to increase output to 2.2 mb/d in July matching the level that the country produced before the Niger Delta Avengers began attacks earlier this year.

However, on July 6, the militants struck again, blowing up several of Chevron’s truck lines placing into question the reliability of the country’s output.

Overall, world oil production remains steady near 100 mb/d exceeding demand by roughly 2% or 2 million barrels of oil each day. For frame of reference, market analysts calculate that for every 1% that supply exceeds demand, oil prices fall roughly 20-25% although the current market dislocation has already been priced in.