Oil punches through $50 USA a barrel as world demands more crude

EIA chart changes in gasoline prices after hurricane landfall

After a long time, commodity prices are on the rise.

The global oil surplus is beginning to shrink due to stronger-than-expected European and USA demand growth, as well as production declines in OPEC and non-OPEC countries, the International Energy Agency said on Wednesday.

OPEC said inventories were falling and that an increase in the price of Brent crude for immediate delivery to a premium over that for later supplies, known as backwardation, raised hopes that a long-awaited market rebalancing was under way.

According to an S&P Global Platts preview, EIA data could show a build of 10.1 million barrels for crude oil, but a drain on gasoline stocks of 4 million barrels.

The Paris-based IEA yesterday lifted its global oil demand growth estimate to 1.6m barrels per day (bpd) from a previous estimate of 1.5m bpd and said global oil inventories were tightening. As of March 2017, 49% of total USA working crude oil storage capacity and more than 40% of working storage capacity for both motor gasoline and diesel fuel were located in the Gulf Coast region. Over the last month, crude oil imports averaged about 7.6 million barrels per day, 7.4% below the same month a year ago.

Although Hurricanes Harvey and Irma are expected to slow United States oil demand growth in the third quarter of this this year, "OECD demand growth continues to be stronger than expected, particularly in Europe and the U.S.", the IEA said. For the week ending September 1, 2017, gross inputs to refineries in the U.S. Gulf Coast fell by 3.2 million b/d, or 34%, from the previous week, the largest drop since Hurricanes Gustav and Ike in 2008.

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The Paris-based IEA's monthly report noted that the USA reliance on the Gulf Coast makes it vulnerable to events like Harvey.

Notably, U.S. crude is trading below $50.00 per barrel while Brent oil is hovering around $55.00 per barrel.

The report also stated that refineries reduced output following Hurricane Harvey, while gasoline and distillate inventories declined.

Financial Times reports in its article Global oil markets have "started to rebalance" - IEA that Opec producers are targeting $60 a barrel, which even delegates say is looking unlikely.

"As far as Harvey is concerned, disruption to local oil markets in the US Gulf Coast is easing on a daily basis and its impact on global markets is likely to be relatively short-lived", said the agency, which advises the OECD on energy markets.

It recommended that the U.S. strengthens its energy security to address events, such as hurricanes, by potentially adding products to government-held inventories.

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