Brent crude oil dropped below $67 (£42.5) a barrel today (May 15th) after reports global production is still running well ahead of consumption, boosting reserves. The International Energy Agency say big oil producers are pumping at least two million barrels per day (bpd) more than required.
The US government's Energy Information Administration says world oil stocks are rising at 1.95 million bpd this quarter and will continue to build until at least the end of 2016, Reuters report.
After collapsing last year, oil prices have rallied strongly since January on ongoing concerns over disruption to supplies from the Middle East. One of the defining factors behind the first quarter rise in oil has been a slowdown in US shale oil production and the conflict in Yemen.
Oil prices set to correct
Oil producing nations use the Gulf of Aden, on Yemen's southern coast, to ship oil along the narrow straits of Bab el-Mandeb between Yemen and Djibouti. Investors feared the recent conflict could have created log jams in delivery.
But now analysts say the rebound may be temporary, and could be about to correct. "A mood change is in the air," Eugen Weinberg, global head of oil and commodities research at Commerzbank in Frankfurt, told the Reuters Global Oil Forum. "The oil price rally looks like it may be slowly running of steam."
There has been considerable movement on the corporate side in the oil and gas market. Royal Dutch Shell announced in early-April that it had agreed to purchase exploration firm BG Group in a deal which values the business at £47 billion.
Oil prices have been tumbling since the summer of 2014, dropping below $45 a barrel at the end of 2014, due to a weakening demand in industrialised countries following the financial crisis.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.