Oil Producers Fear Bloated Crude Inventories Will Squash Future Prices

Chris White | Energy Reporter

Oil producers are sitting on recent gains across the crude futures price market, selling forward contracts, signaling that the oil industry is becoming increasingly wary of recent jumps in the price of oil.

Brent crude futures have surged, moving more than 40 percent from 12-year lows. Future crude prices are now cruising above $40 per barrel.

Still, oil producers are not satiated by the increase in price, fearing the 20-month low in oil prices will march on unimpeded.

The thin spread between the benchmark crude for future delivery and that of prompt, current delivery sank $8 to slightly more than $10 a barrel, according to Reuters.

Brent crude’s flattening spot price “since January comes as many producers want to cash in immediately on recent price rises. They’ve been heavily selling 2017/2018 and beyond, and it shows that they don’t quite trust the higher spot prices yet,” one crude futures trader told Reuters Thursday.

“This means that even the producers don’t really expecting a strong price rally until well into 2017 or later,” the source added.

The move to sell off forward oil contracts shields oil producers from potential ebbs in the market, but it may also contribute to more price pain in the future, sources connected to the producers and traders told Reuters.

At the center of historic low oil prices is a glut in crude supply — the world is awash in oil.

The Energy Information Administration (EIA) reported Thursday that oil stocks skyrocketed by 3.9 million barrels to a total of 521.9 million barrels. The glut has contributed to the 70 percent reduction in oil prices since the 2014-high of $100 per barrel.

An investor at Goldman Sachs told reporters the increase in oil prices is fleeting, adding that the “oil price rally will prove self-defeating as it did last spring,” in the event nothing is done about the massive oil outputs.

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Tags : energy energy information administration oil prices opec
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