CALGARY – Benchmark oil prices averaged below US$35 per barrel in the first three months of this year, but since then they’ve strengthened to the point where they were trading above US$50 on Thursday. 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 why oil prices are making a comeback:
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.
WILDFIRES IN FORT MCMURRAY, ALTA.: The fires that struck the heart of Canada’s oilsands reduced the country’s crude 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 next Monday will be roughly 28 million barrels. He expects the price impact to linger “well into June.”
GLOBAL DISRUPTION: International oil supplies have been disrupted. Attacks by militants in Nigeria have cut output in that country to a 20-year low. In Venezuela, production has been hit by power cuts.
STRONGER DEMAND: Oil demand is stronger than expected. Gasoline demand in the U.S. 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.
IRAN INFLUENCE HAS DIMINISHED: 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.