Crude Prices Fell, but IEA Believes That Huge Price Spike Is Soon on Cards

On Monday, oil prices were soft; in fact, they even wiped some of the gains that were accumulated in the previous sessions. All this happened because of the rising worries that there can be a slump in China’s demand for crude owing to lower growth targets. Also, there was a concern if Russia will comply with the global deal that happened between OPEC and non-OPEC nations to cut oil production.

The escalating violence in the Middle East led to further brakes in the oil prices. On Wednesday, the oil futures fell in Asian trade when the industry data released indicated that there can be inventory built-up for the ninth straight week. Both OPEC and non-OPEC members are trying their best to contain production and help to stabilise the crude prices, but the concerns arising due to different factors are making things difficult.

The Chief Investment Officer at Ayers Alliance in Sydney, Jonathan Barratt said, “Oil is range-bound. If prices dip below $50 a barrel, OPEC will cut more; if it goes above $55 the U.S. will produce more.” Last week, the U.S. crude stocks were up by 11.6 million barrels. This figure was nearly five times more than what the analysts had estimated.

On Wednesday, the Brent futures were 0.4 percent or 23 cents down at $55.69. U.S. West Texas Intermediate (WTI) crude was down by 0.6 percent or 29 cents to touch $52.85 a barrel.

A senior market strategist at Oanda in Singapore, Jeffrey Halley said, “Oil prices are facing headwinds from a likely U.S. Fed interest rate hike next week, a strong dollar, increasing inventory builds to record levels and rising U.S. shale oil production. The planets seem to be aligning for a bit of a washout of long positions. I think it’s getting time for a bit of a correction in oil prices.

IEA (International Energy Agency), however, is not concerned with this fall in the price of crude and believes that the major hike is inevitable in near future. It has its reasons for such conclusion. It says that the new projects that are in the pipeline are too short to fulfil the rising global demand. Even the US shale revival will not be enough leading to the supply shortage by 2020.

The agency warns that if the exploration companies are not serious about initiating many of the new upstream projects soon OPEC’s spare capacity will stoop to really low levels and this will lead to a sharp rise in oil prices.

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