The Country Caller takes a look at why oil was trading high yesterday
The oil industry had a little cheer on Wednesday as crude oil futures traded in the green. West Texas Intermediate (WTI), the US benchmark for crude oil, up 2.80% at $45.91 per barrel. The global benchmark for crude oil, Brent Crude, was also doing quite well at the same time as it was up a decent 3.45% at $47.09 per barrel.
The rise in crude oil prices comes following the release of the US crude inventory data by the Energy Information Administration (IEA). In the latest inventory data release by the EIA, crude inventories dropped by 3.4 million barrels. The drop came as a major shock and surprised the analysts who had forecasted the inventories to increase by 400,000 barrels.
As reported by the Wall Street Journal, Kyle Cooper of IAF Advisors believed the rising oil prices clearly show that investors are moving away from worries related to the oversupply. In addition to the drop in inventories, US production also dropped from 8.93 million barrels of oil equivalent in the prior week to 8.82 million barrels of oil equivalent this week.
Another factor that may have contributed to the decline in prices is also due to the Canadian wildfires which forced several companies to curtail their production of the Canadian tar sands. Nigeria has also seen a decline in production as a terrorist group calling itself the Niger Delta Avengers was attacking the facilities of foreign companies including Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) and Chevron Corporation (NYSE:CVX)
The avengers believe that more control of the oil fields should be given to locals instead of the foreign companies. The Nigerian crude oil production, as a result, has fallen to its lowest since 1995. The United States Oil Fund LP (ETF) (NYSEARCA:USO) was also up 3.18% at $11.34 and United States Brent Oil Fund, LP (NYSEARCA: BNO) was also up 3.94% at $14.51 as of market close yesterday.
Despite the recent recovery, in the long-run oil prices can slide once again. Saudi Arabia has changed its policy and decided to pump more crude than ever. Following a recovery of the wildfires in Canada and in Nigeria, production may stabilize once again and fall again.