Crude Oil Prices May Struggle Despite US Production Plunge – Part 1
There is a growing belief that crude oil prices may struggle to adjust following the shock of the US government’s decision on Friday to dramatically slash the amount of oil it pumps into the international market. This is partly because many traders who had been buying large volumes of US crude oil in the hope that it would rise sharply in price have now lost their appetite for the commodity.
Many experts are predicting that there is going to be a period of time when crude oil prices do not rebound or increase in the near future. One of the factors which is believed to be behind this lacklustre outlook in the futures market is the fact that the recent supply out-pours from the Middle East and Nigeria has caused the global supply glut that the market is facing at the moment. The world is already well over-supplied with petroleum and as this situation continues to be aggravated, the impact of oil prices will continue to spread across the globe.
In addition, another factor which is thought to have helped push down oil prices is the continued weak economic conditions in Europe and the US. In the absence of strong growth, both the US and Europe have been suffering from a combination of weak consumer spending and job losses in order to make way for a higher degree of unemployment.
There are other factors which are believed to have helped contribute to the weakening of oil prices as well. Some analysts believe that the price drop in the last few years may have been due to the increase in oil exploration, the failure of the European economy to recover following the collapse of the global financial system and also the political instability in some countries like China.
A number of analysts are also of the opinion that the recent drop in the price of crude oil is not going to last as the US and other world economies are struggling to cope with the reduced demand. The fact that there is a limited amount of oil being pumped into the global market, coupled with the increase in the demand, has led to an increased over-supply of the commodity in many parts of the world.
In the United States, some experts believe that the price decline can still be sustained for some months as the nation’s economic situation is not likely to improve any time soon. This is a result of the fact that most of the US refining capacity has already been shut down or converted into liquid form so that the government is in effect holding back on further production in order to reduce its reliance on imports of the fuel.
Despite the recent drop in crude oil prices, the US still remains one of the world’s major consumers of oil. Even though the country’s exports are expected to decrease for the next few months, the amount of crude that it consumes is still expected to continue to increase until demand meets the increased supply.
Meanwhile, despite the recent fall in the price of crude, the US is expected to continue to import more crude oil in order to replace the amount of the UK production. Although this may not have a significant impact on overall demand, there is still some impact on the market as the country may require more crude oil in order to run its industrial plants and other essential infrastructure.
If the UK output does not recover soon, the market should find itself facing a period of increased imports in order to meet rising domestic demand. This will only affect the price of crude oil and also will put pressure on the already strained global oil supply chain.
There is no sign yet that the current economic situation in Europe will change anytime soon and it is highly unlikely that the country is going to experience an increase in demand at a rate which would help to reduce the current level of supply. However, analysts believe that in the next few months, the UK is expected to experience an upsurge in its demand for petroleum as there will be increased consumer interest in fuel.
Despite the potential negative effect on prices, analysts believe that the UK production is set to continue to rise in the short term as the country’s population continues to rise. The increased consumption of petroleum will only have a minimal impact on the global market.
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