TORONTO – Benchmark oil prices averaged below US$35 per barrel in the first three months of this year but they’ve strengthened to about US$50. What’s driving the rally in West Texas Intermediate and other types of crude? Put simply, it’s supply and demand.
Here are five reasons that oil prices are strengthening:
1) U.S. oil production is down. The U.S. Energy Information Administration reported Wednesday that crude oil production in the United States fell to 8.77 million barrels per day, the lowest in 20 months. Producers have spent less to replace depleted reserves. Crude inventories are also down.
2) Wildfires near Alberta’s oilsands have reduced Canadian output. Calgary analyst Martin King of FirstEnergy Capital says he now estimates a total of 700,000 barrels per day of oilsands output will still be offline next week and the cumulative loss in production to May 30 will be roughly 28 million barrels. He expects the price impact to linger “well into June.”
3) International oil supplies disrupted. Attacks by militants in Nigeria have cut output there to a 20-year low. Meanwhile, Venezuelan production has been hit by power cuts.
4) Oil demand is stronger than expected. Gasoline demand in the United States rose to 9.6 million barrels per day last week compared with 9.2 million in the same week a year ago, according to the U.S. Energy Information Administration, as Americans take to the roads to enjoy prices at the pump that are 20 per cent lower than a year ago.
5) Iran’s influence on prices has been muted. When exports resumed in January after an embargo was lifted, most analysts expected prices to fall. That hasn’t happened despite the country ramping up to over two million barrels per day.