Oil Prices: Dipping Below 60 $ As Fears Become Fact


For the second time this month, oil prices dropped below USD 60 per barrel. While, initially, growth concerns and a bearish market mood drove the latest sell-off, fundamentals are now also adding to the price pressure. US oil storage continues to swell unexpectedly on the back of temporarily strong imports, soft demand and rising shale oil production.

The weekly report of oil inventories in the United States (+2.2 million barrels per day against an expected fall of 481,000 barrels per day), led to a drop in oil prices (West Texas: -4% to $ 51.15 per barrel, the lowest price in four months, Brent: -3.7% to $ 59.97 per barrel, the lowest price since January) .

As said by analysts at Julius Baer:

“Oil looked like a derivative of the broader risk aversion in late May but has largely decoupled from equity markets so far in June, highlighting the softening of fundamentals. At today’s levels, oil trades at the lower end of the price range that is defined by shale costs and fuel inflation.”

Oil demand looks soft indeed, and consumption levels are at or below year-ago levels across most key markets. However, the supply side should not be ignored. At current price levels, Saudi Arabia and other petro-nations have little pressure to lift production restrictions.

US prices are trading close to USD 50 per barrel, and there are already signs that the shale business will slow drilling and completion activity. The shale boom continues, but no longer at last year’s breakneck pace.

Julius Baer maintain their Neutral view, “not the least as unpredictable politics and a skittish market mood remain in the driving seat for the time being, pushing prices either way.”

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.