Crude Oil priced fell by 5 percent on Wednesday, marking the biggest fall since March. Crude oil is not making headlines for the right reasons anymore. While OPEC pushes hard to make prices soar, the regional struggles of the Middle East shave off their efforts. Has the bull run in oil officially ended?
Here are three reasons why oil bulls are not happy with the current marketing conditions as prices continue to fall.
Growing US Crude Oil Stockpile
Government data has baffled the market. At a time when oil stockpiles usually decline, the US has added 15.5 million barrels of crude oil and petrol products. This is the biggest leap in stockpiles since 2008, which has left the investors shocked. While fracking could be blamed for some of the stockpiles, it is not the only reason behind the stock. The demand for gasoline has dropped by 505,000 barrels per day. Consequently, growth in fracking and oil imports is not helping the market gain.
Exports and Imports Dynamics Change
The US is exporting far less oil. At the same time, oil import is getting higher by the day. The difference between the US benchmark and Brent crude has lessened in May. In fact, there was a premium of merely $1.99 between the two. This difference has been the smallest since February, signaling problems with crude oil in the US. Because of this narrow spread, imports in the US have increased manifold.
The exports have fallen by 746,000 barrels per day, which is the biggest drop in US exports ever. The imports have improved by 356,000 barrels per day which leads to additional stockpiles and lower prices. Saudi Arabia is not exporting oil to the US as it previously did with a 55 percent drop. However, imports from Iraq alone have gone up to 1.14 million barrels per day. Preliminary data from the EIA suggests that Iraqi oil import could be the highest since 2012. At the same time, Saudi imports are the lowest since January 2015.
Problems in the Middle East
OPEC has tried to support oil prices in the past by pledging to cut production till first quarter of 2018. However, this is not bringing any relief to the prices as expected. Recently, some Arab states cut ties with Qatar, a relatively small producer. However, cutting trade and diplomatic ties and growing tensions between states in the gulf could lead to problems with compliance.
A bearish trend is developing in oil prices and it is likely that oil prices drop to mid-20s. Oil markets need to be more patient and help push prices as they continue their slump.