Oil traders woke up on January 6 to the news that Brent crude traded below $35 per barrel for the first time in 11 years. The new milestone was reached even as tensions have been ratcheted up in the Middle East between Saudi Arabia and Iran, as well as ISIS attacks on oil storage assets in Libya.
A sense of despair continues to loom over oil markets, a mood that geopolitical unrest probably cannot undo. The EIA reported weekly figures that continue to show a stubborn refusal by the U.S. oil industry to cut back on production. The EIA estimates that the U.S. produced 9.2 million barrels per day (mb/d) for the last week of 2015, meaning that output levels have remained relatively flat in recent months despite expectations of a swifter decline. Gasoline inventories actually increased by 10 million barrels last week as well, and oil demand over the past month, at 19.7 mb/d, is about 2.5 percent lower than a year ago.
But all is not lost. There was a surprisingly strong drawdown in oil storage levels, with crude inventories falling by 5.1 million barrels for the week ending on January 1, exceeding analysts’ estimates. One week does not make a trend, but storage levels are down from a peak of 490 million barrels reached in December.
By Charles Kennedy of Oilprice.com
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