Crude Oil Declines Despite Harvey & Falling Inventories

The main question everyone asks nowadays is why are crude oil prices falling? Many traders are asking the same question over and over again, and so far, there is no logical answer for such question.

If you are reading this article and you are asking it too, you might get the right answer, even if you can’t agree with it.

Despite the fact that the global inventories are declining, OPEC suggests another extension of the current deal, even after the huge storm “Harvey” which hit Texas.

Falling Inventories

Here we will be talking about the facts. The US Crude Oil Inventories have been declining for the past seven weeks, which is the second longest declining stake this year.

In addition, for the past seven weeks, the numbers were surprisingly higher than the market estimates.

During that period, analysts were estimating a decline of 1-2M barrels a week. However, the numbers were coming in far away from their estimates, not less than 4M barrels a week.

Now things will start to be even more interesting and confusing at the same time.

OPEC Production At The Highest Level Since December

So OPEC and Non-OPEC Members have agreed to cut their output back in December of last year, targeting 32M barrels.

They indeed cut their production for five consecutive months only, from 34.38M in November of 2016 all the way down to 31.97M barrels in April of this year.

Yet, since then, the production has been rising for the past three months, it increased in May, June, and July, reaching 32M barrels.

The big question here, how is this even logic that they agreed to cut the production, yet, the production is rising once again? Did you get it yet?

Extending The Same Deal Twice

Earlier this year, OPEC and Non-OPEC decided to extend the current deal to expire in September of this year.

In March they also decided to extend it once again to March of next year, despite the fact that the production has increased during their meetings to agree on the extension.

Finally, earlier this week, when Crude Oil was sliding, Russia and Saudi Arabia announced that they would suggest extending the deal by another 3 months, which means that it should expire in June next year. Did you get it yet?

Putting It All together

I know that you don’t have your answer yet, but this is the part where you might understand why Crude Oil prices are not rising.

First, let’s talk about OPEC agreement, if there is really a deal to cut the production, why OPEC total production has increased for the past three months? Moreover, the survey of August’s production will be announced in the next few days. Polls are suggesting that it might cross above 32.1M barrels, which would be the fourth monthly increase in a row.

Despite the agreement to cut the output in December of last year, Crude Oil failed to rally. Moreover, declining inventories in the US and globally have also failed to support the prices.

Above all that, extending the same deal twice, and OPEC is about to extend it once more, failed to support the prices. In fact, Crude is still declining, reaching the lowest level since Mid-July.

The answer to the question is “ The market needs more output cut .“ The market is telling OPEC and Non-OPEC producers that what you have done to cut the production is not enough for a notable rally in Crude.

Finally, OPEC and Non-OPEC will always try to lift the prices if Brent declines below $50 or near that barrier, they will keep on trying until they will be forced to cut the production.

Otherwise, don’t bet on any notable rally anytime soon.