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Oil price deadlock with only $4 price band

The narrow range has been in play since April while contradictory views have been pulling and pushing at prices

Oil prices continue to trade within the narrow range that has been in place since late April as contradictory views of an oversupplied versus a tightening market have been pulling and pushing at prices on an almost daily basis.

The rises and falls have largely been in a $4 price band, with Brent trading between $64-68 per barrel (b) since 23 April. Brent was pegged at around $65/b as Petroleum Economist went to press, while WTI was hovering at about $59/b. Slowing US light, tight oil supplies pushed WTI 14% higher in April versus March, roughly twice the increase in Brent. 

In the supposed stand-off between Opec and US light tight oil, US producers appear to have blinked. The relentless rise in US supply seems to be abating after months of cost cutting and a 60% plunge in the US rig count. US inventories, the top source of recent OECD builds, already feel the pinch, posting their first weekly draw in 17 weeks at the end of April. 

Conversely, preliminary data show OECD-wide product stocks stopped drawing and swung into growth in April. Further such builds may follow as global demand goes through a seasonal soft patch and refining activity increases worldwide.

The slowdown in the light tight oil patch aside, April figures saw global crude supply increase by 3.2m barrels per day (b/d), extending the first quarter’s massive gains, the International Energy Agency (IEA) said.  By comparison, global oil demand growth is estimated at 1.1m b/d for 2015, up from 0.7m b/d in 2014.

Opec production has increased, but it would be premature to suggest that the cartel has won the battle for market share. Russian output jumped unexpectedly, Brazil’s production increased significantly, while Chinese, Vietnamese and Malaysian supplies are also rising at a healthy clip.  

Gauging the extent of oversupply in global oil markets is especially tricky given market watchers are struggling to reliably count barrels that are being traded and stocked, with some estimates showing over 100m barrels unaccounted for in international statistics.

Despite tentatively bullish signals in the US, and barring any unforeseen disruption elsewhere, the market’s short-term fundamentals still look relatively loose, concluded the IEA.

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