Difference between Global Supply and Demand will Cause Crude Oil Price Drop

Crude oil prices will most likely drop because world supply is overpowering demand, said Ali al-Naimi, the oil minister of Saudi Arabia.

Al-Naimi said that the kingdom wants a lower oil price compared to its level now. Moreover, he added that they need to bring Brent crude prices to the $100 per barrel level.

Brent North Sea Crude, the benchmark oil for over 50% of the market worldwide, has declined by 6% in the midst of concerns that the debt crisis of Europe will worsen and decrease demand for fuel.

OPEC is making an effort to lower prices even further still, said Abdalla el-Badri, the secretary general of the organization. According to figures, the manufacturing group, set to convene next month, is producing 8.3% additional crude this quarter compared to what it deems as necessary.

Brent crude prices for settlement in June recently fell by 0.8% to reach an oil price per barrel of $112.26 in London’s ICE marketplace. Meanwhile, West Texas Intermediate (WTI) crude oil for delivery in June dropped by 2.4% to reach $96.13 per barrel.

The supply of oil is more than the demand by almost 1.3 to 1.5 million barrels daily, said al-Naimi. The demand may bounce back in this year’s second half, he added.

OPEC’s data shows that Saudi Arabia has raised its last month’s oil output to the highest level in over 30 years. Saudi produced 10.1 million oil barrels daily during the past month. That is around 200,000 barrels more compared to the month before that, reported OPEC on May 10.

The Energy Department of the United States said that the amount of oil produced was the highest since 1980.

Around 80 million crude barrels are stored by Saudi Arabia. In Tokyo last week, it was announced that the supplies have been set aside in pipelines, in Saudi Arabia and in tanks.

80 million barrels of crude supplies is lower than the 89.9 million barrels of oil consumption worldwide which was projected by the International Energy Agency this year.

By: Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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