What seemed like a resurgence in the oil market may have turned out to be a false dawn after all, as prices tumbled by 4 percent Friday, following distressing reports from the International Energy Agency.
According to these reports, oil reserves in the United States "might soon test storage capacity limits," which, says the agency, could result in a good chance of "renewed" softness in crude prices. Oil production in the U.S. is on its way up, despite recent cutbacks in new drilling projects. West Texas Intermediate, which serves as the U.S. benchmark, dropped to about $ 45 per barrel, while Brent crude, which is the international oil price benchmark, slipped to under $ 55 per barrel.
The Department of Energy recently announced that it plans to inject an additional five million oil barrels to the U.S. Strategic Petroleum Reserve. And while the purchase would still have to be approved by Congress, the reserves will be bolstered in the early summer months. Still, with America producing 9.4 million barrels of oil per day, experts believe that the purchase does not exactly constitute an effort to make prices firm up, but rather a "statutory obligation" on the Obama administration's part.
As mentioned above, the recent surge in oil prices could be an example of the proverbial false dawn. With the winter months in cold countries drawing to a close, the oil space appears to be due for a period of softness, as European and Asian refineries go through maintenance, thus resulting in weaker demand. Another variable that may have contributed to the oil price decrease is the ongoing refinery strike in the U.S., though the effect was not egregious as it was business as usual in the 12 affected plants.
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