One reason for the drop in the oil prices is the over-supply of oil in our stores. Oil prices are already stooping down, and if China’s demands continue to fall then the situation will get really worse really fast. It is, as the Head of a company called The Commodity Strategy, Mr. Ole Sloth Hansen said in a market forecast, the oil of the country is currently suffering from a massive chronic oversupply in stores. He also said that the situation will continue getting worse before it finally starts to get better again.
An analyst of the situation has predicted that by the end of the year, the crude oil prices will have to climb up to approximately $55 per barrel, and although the ride will be bumpy, it is not a goal that is impossible to meet.
After the Chinese stock market crashed last week, the prices of each barrel of oil has dropped down to a record of $40. This is the highest low that the oil prices have reached in the course of six and a half years.
By the end of the week, however, the oil prices rallied a little, with Brent Crude going back to around $50 on each barrel, the prices are yet to climb up 50% more when compared to the oil rate in June 2014, when it used to be around $114.
Hansen had said that OPEC has tweaked up production in an attempt to generate more cash before the expected rate of the sale of oil is achieved. He also said what’s worse is that during the upcoming three months, the demand of crude oil by the US refinery will also start to slow down because of many affecting seasonal factors, which will lead to yet another increase in the inventories that now stand at 100 million barrels higher than the average set of the last five years.
Currently, crude oil sells at $40 per barrel, which is a loss for most US producers. But now the question that arises is, ‘how fast will the production of crude oil be impacted by this falling price?’
The case with China concerns most, because if the Chinese cut off their demands, then the small rise that was seen last week will also be lost immediately. So, relationships and trade with China, which is the biggest importer of crude oil in the world, must be maintained carefully.
Some official records say that China’s crude oil imports went up by 22%, that is- 7.25 million barrels each day, in the July of each year. The newest report made by the IEA studied China’s oil demands of 2014 and concluded that the demand might rise up to 3.6% this year according to the comparisons that they made.
The IEA predicts a year-on-year rise of 1.7% in 2015 on the oil demand and estimates it to touch up to 94.2 million bpd. Hansen, however, warned us regarding this and said that any change going south to the demand growth will eventually end up in increasing the glut of the supply even more.