San Francisco/London/New York: Fighting across Iraq, Libya, Ukraine and Gaza, and an accelerating economy, should mean higher oil prices. Yet crude is falling.

Six years ago, oil soared to a record $147 a barrel as tension mounted over Iran’s nuclear programme and the world economy had just seen the strongest period of sustained growth since the 1970s. Now, West Texas Intermediate, the US benchmark price, has traded below $100 for 10 days and Brent, the European equivalent, tumbled to a 13-month low on Tuesday.

What’s changed is the shale fracking boom. The US is pumping the most oil in 27 years, adding more than 3 million barrels of daily supply since 2008. The International Energy Agency said on Tuesday that a supply glut is shielding the market from disruptions. Bank of America Corp., Citigroup Inc. and BNP Paribas SA concur.

“North America has pushed out an incredible amount of crude oil that it used to import," Ed Morse, the head of commodities research at Citigroup, said in a phone interview from New York on Tuesday. “The world doesn’t need that much."

The US imported 7.17 million barrels a day of crude in May, a 26% drop from the same month in 2008, according to data compiled by the Energy Information Administration, the Energy Department’s statistical arm. Foreign deliveries will meet 22% of US demand next year, the lowest level since 1970, the agency said on Tuesday.

US growth

US gross domestic product will grow 3% in 2015, accelerating from 1.7% this year, according to the median forecast from 84 economists surveyed by Bloomberg. Job openings rose in June to the highest level in more than 13 years, firming up the labour market picture for the second half of the year, according to the US government.

The nation’s output is forecast to climb to 9.28 million barrels a day next year, the highest level since 1972, the EIA said. The agency cut its 2014 price forecast for WTI to $100.45 a barrel on Tuesday from a July projection of $100.98.

Oil markets became more resilient to the threat of global supply disruptions because of spare capacity and softer global demand, Francisco Blanch, the head of commodities research at Bank of America in New York, said by phone on Tuesday.

“Growth in oil demand was far outpacing our ability to physically supply oil in the first half of 2008," Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas in London, said by phone on Tuesday. “The price of oil needed to rise promptly to ration demand."

Speculative advance

“The 2008 price rally was supported by a flood of investors pouring money into oil futures as they sought alternatives to stocks. Today, speculative interest in crude is shrinking," Tchilinguirian said.

Net-long positions in both Brent and WTI fell to the lowest level in at least six months in the week ended 5 August, according to data compiled by the ICE Futures Europe exchange in London and the US Commodity Futures Trading Commission.

“There was a bubble in the market in 2008, with the view that the world was running out of oil and other commodities," Morse said. “Everything changed soon after 2009."

Brent crude for September delivery fell as much as 0.6% on Wednesday in London to $102.37 a barrel on the ICE exchange, the lowest price since July 2013. WTI oil fell 9 cents to $97.28 a barrel at 10.05am London time in electronic trading on the New York Mercantile Exchange, after closing on Tuesday at $97.37 a barrel.

Gasoline decline

Retail gasoline in the US has dropped 22.2 cents a gallon since peaking in April at $3.696, data compiled by Heathrow, Florida-based AAA show. Prices are at a four-year seasonal low and capped the biggest July drop in six years as the nation’s refiners ran the most oil on record to take advantage of cheap domestic supplies.

The recent decline in oil prices may prove to be just a phase as global demand is forecast to pick up in the second half of the year, Bhushan Bahree, senior director of global oil at IHS Energy, said by phone on Tuesday.

Demand will rise 1.71 million barrels a day to 93.45 million in the third quarter and climb again to 94.04 million in the fourth, the Paris-based IEA said in a report on Tuesday.

“There are different moving parts when you go forward, and what we’re expecting now may not play out the same way," Bahree said from Washington. “I would still think we are going to see more demand and there will be some support for prices."

Oil demand

Global oil demand grew last quarter at the weakest pace since 2012, helping to calm world markets amid conflicts in the Middle East and North Africa, the IEA said in its report. The agency cut estimates for total growth in 2014 by 180,000 barrels a day.

Supplies from the Organization of Petroleum Exporting Countries, which pumps about 40% of the world’s oil, rose to a five-month high of 30.44 million barrels a day in July as Libyan output recovered and Saudi Arabia increased production, the IEA said.

Market participants are obviously fed up with events that are built up as geopolitical risks, but which never realize as material disruptions in supply, Eugen Weinberg, the head of commodities research at Commerzbank AG in Frankfurt, said by email on Tuesday. At the same time the demand growth has been rather disappointing.

Libyan oil

Libya loaded the first oil cargo from the port of Ras Lanuf since it was closed by rebels a year ago. The tanker will soon leave port with 680,000 barrels of crude and head to Italy, Ibrahim Al-Awami, the oil ministry’s director of measurement, said by phone on Tuesday from Tripoli. State-run National Oil Corp. plans to double exports this month.

“US oil production is outpacing unplanned outages that cut into global supply," Adam Sieminski, the EIA’s administrator, said by phone from Washington. “Global outages affected about 3.2 million barrels a day in July, up from 1.5 million at the end of 2011," he said.

US output has meanwhile risen 2.61 million barrels a day since the end of 2011.

“Production is continuing to grow, and in the meantime, global demand is slowing down a little bit and efficiency gains are beginning to have an impact," Sieminski said. “It’s a very positive story for consumers." Bloomberg

With assistance from Naomi Christie in London.

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