Analysis by Dr. Nancy Yamaguchi

 

West Texas Intermediate (WTI) crude prices are down to approximately $45.25 per barrel (/b) this morning after a sharp collapse yesterday. Another sharp collapse came overnight, which saw WTI prices plunging as low as $43.76/b before some early morning buying brought prices back above $45/b. Crude prices have retreated to where they were in November, prior to OPEC making its historic production cut deal.

 

WTI crude prices have opened lower in 12 of the last 16 trading sessions, falling by 14.8% ($7.89/b) since April 12. Product prices also dropped sharply yesterday, plunged overnight, and had an early morning bounce-back.

 

Although the global crude market is forecast to reach a better supply-demand balance this year, several developments this week heightened concern that the oversupply will linger beyond what was forecast. First, U.S. crude production continues to rise, and demand growth has been sluggish. Second, U.S. oil inventories failed to show the across-the-board drawdowns expected.

 

Third, the OPEC-non-OPEC production cut compliance rate was revised down slightly. Even at high compliance rates, it is taking time to drain excess inventories. Analysts and investment houses vary widely in their assessments of when a better supply and demand balance will be reached, whether OPEC will agree upon an extension, and whether such an extension will be effective.

 

Fourth, Libyan crude supplies were restored after another disruption caused by civil unrest. In a surprise move, the leaders of the two rival governments met in the United Arab Emirates (UAE) and held what were called “breakthrough” talks that have the potential to end years of internal strife. Fayez al-Sarraj is the head of the official UN-backed government known as the Government of National Accord (GNA). The key military opponent is General Khalifa Haftar, who heads the self-declared Libyan National Army and leads a competing administration. The two parties reportedly agreed in principle to hold elections in 2018 and to a power-sharing deal.

 

WTI crude opened at $45.51/b today, a major drop of $2.09, or 4.39%, below yesterday’s opening price. Current WTI prices are $45.23/b, down 29 cents below yesterday’s closing price. Both crude and product prices trended down this week, with a marked drop yesterday and another drop overnight, followed by a bounce-back.

 

Diesel opened at $1.4114/gallon in today’s trading session. This was a serious drop of 5.77 cents (3.93%) below yesterday’s opening price. Current prices are $1.4139/gallon, up by 0.16 cents from yesterday’s closing price. Diesel prices have opened lower for 14 of the last 16 trading sessions, dropping by 24.31 cents, or 14.7%, since April 12. Diesel prices are at their lowest point since mid-November.

 

Gasoline opened at $1.4825/gallon today, a drop of 4.39 cents, or 2.88%, from yesterday’s opening. This was the lowest opening price since February 8. Prices are $1.4789/gallon currently, a decrease of 0.23 cents from yesterday’s close. Gasoline prices have opened lower in 15 of the last 16 trading sessions, dropping by a total of 28.14 cents, or 16.0%, since April 12.

 

There may be positive news on the U.S. economic scene. The U.S. Jobs Report has just been released, and the results are better than expected. The consensus expectation was for 190,000 jobs to be added in April, and for the unemployment rate to increase to 4.6%. The Bureau of Labor Statistics (BLS) reported that payroll employment rose by 211,000 in April, and the unemployment rate declined to 4.4%.