On Thursday Brent crude rose above $50 while the WTI rose to $49.85. The rise in prices came after the EIA reported a dramatic fall in U.S. inventories. The weekly drop of 4.2 million barrels, far more than the 2 million that was expected, triggered a sharp rise in a market which had been growing increasingly bullish, sending the Brent price above $50 on Thursday morning. It is the first time in seven months that the price has reached this level.
It’s a recovery that came much more quickly than analysts expected. Since reaching a low of $27 in January, both Brent and WTI have risen by nearly 80 percent, an impressive achievement considering the general slump in commodities. Concerns from the Energy Information Agency (EIA) that the world would “drown in over-supply” in 2016 have been allayed.
The new price reflects disruptions in world production. Wildfires in Canada have affected imports to the U.S., while persistent violence in Nigeria has caused that country’s exports to fall from 2.2 million bpd to less than 1.4 million bpd according to the Nigerian oil minister. Canadian crude is the single largest U.S. oil import, and the sudden fall in Canadian production was bound to have an impact on U.S. inventories. There is also the increasingly chaotic situation in Venezuela, a major Western hemisphere producer which has been hammered by economic crises brought about by the slump in prices. These disruptions, combined with falling production elsewhere, have accelerated the upward trend in prices, indicating that the market could be close to levelling off near a $50 baseline.
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