Oil Prices Fluctuate Between Saudi Supply Pledge and Low Price Driven Demand

Saudis planning oil production boost for additional Indian supply, while IEA report claims a rise in demands due to low prices.

United States Oil Fund (NYSEARCA:USO) has seen its stock price drop by less than 1% before Friday’s opening bell after the Saudis have reported increasing oil production to boost supply to Indian refiners. A further rise in the supply will exacerbate the already oversupplied market and will likely push down oil prices further.

According to Reuters, if demand for refined products dipped due to the oversupply, then it will spill in the entire crude market, which would depress crude prices even further, due to the ongoing maintenance program by some refiners gearing up for the hot summer season, witnessing temperatures rise a bit above average.

The US dollar also played a role by trading higher than the euro due to news emerging from the Eurozone that all is not entirely well between the EU and Greece from the ongoing debt talks, and the IMF has thrown cold water over the prospects of success from the talks.

However, the International Energy Agency (IEA) has reported that there has been an uptick in global demand for energy, due to the low oil prices that has helped to boost fuel use, mostly from Americans, who are now starting to hit the roads with the summer season on the horizon and ahead of July 4 celebrations. With temperatures in the Middle East nearing the mid 40’s and 50’s, expect a lot of oils to start being gobbled up by the Gulf States alone.

As stated by the agency, demand has grown by an additional 280,000 barrels per day (bpd) to 1.40 million bpd this month, bringing the total monthly demand as of now to almost 94 million bpd. It seems that OPEC’s decision to maintain current output levels has paid off though they did not bet that there will be a rise in demand as reported by the IEA.

Further, the IEA has reported that supply from OPEC has risen to 31.33 million bpd in May, which is the highest since August 2012 (which is likely to remain that way for the coming few months at the end of summer), whereas non-OPEC production has risen to almost a million bpd, citing fear of maintenance shutdowns. It seems that cut down in capital spending is taking a time to be visible in the reduction in non-OPEC supply, as well as the slow rise in prices. The global production is still going strong.

Benchmark crude is currently trading at $65.75 per barrel as of yesterday.