Several developments on the international markets are pointing toward rising oil prices, including a pair of supply disruptions from major oil producers and continued competition for market share by the cartel known as the Organization of Petroleum Exporting Countries (OPEC). While it remains to be seen how these trends ultimately play out, uniformly low energy prices have continued to weigh heavily on stagnant inflation.
Crude Oil Movin' On Up
Although both major crude oil benchmarks fell more than 3% each on the futures market on Wednesday, prices for the commodity have been on a tear over the last week or so. Between October 27th and November 3rd, West Texas Intermediate (WTI) advanced by 11.2% while Brent crude, the main European supply, gained a not-too-shabby 8.4%. Over the month of October, Brent crude gained 2.5% after suffering an 11% loss in September. Meanwhile, WTI crude advanced 3.8% in a single trading on Tuesday.
A pair of trends in the U.S. will perhaps continue to lift crude oil: First, the U.S. oil rig count fell to a 5-year low as companies are forced out of the market due to chronically low prices; second, the proposed Keystone XL pipeline connecting the U.S. and Canada appears to be even further out. A Canadian lobby group in favor of the pipeline appears unlikely to bring about a delay in legislation for the project—their hope being that the bill wouldn't reach the president's desk until Obama is out of office, with a Republican potentially replacing him. President Obama has repeatedly expressed his intention to veto the legislation.
Easing Supply Glut?
For the past 17 months, OPEC has been consistently pumping more crude oil than its monthly quotas allow in an effort to maintain the group's share of the global market. This, however, may be changing soon, as the cartel has consistently called for non-member nations to cut their own crude oil output if the 13-member organization does the same in order to increase prices.
There are two other unexpected developments on the international stage that will likely prove supportive of higher crude oil prices. In Brazil, where much of the energy sector is state-run, a strike by the country's largest public-sector workers' union is going on strike. This union represents the oil field workers, as well; depending on how long the strike goes, Brazil (the world's 12th-largest producer of crude oil) could contribute to an uptick in prices.
Elsewhere, in Libya, ongoing internal military strife has led to armed militia groups blocking off the country's main export terminal. This supply disruption is expected to cause exports from Libya, which holds some of the world's largest crude reserves, to fall off by about 15.5% (70,000 less barrels of oil per day) over the near-term.
The combination of these various factors is likely to lift prices initially, but we will have to wait and see how high oil climbs—and how long the rally lasts.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.