Oil Inventories Drop Sending Prices Higher for Fifth Straight Week

Crude oil and natural gas prices continue to show strength for the fifth consecutive week as the global economy rebounds.

Crude oil prices on the New York Mercantile Exchange for 30-day delivery closed at $73 per barrel on July 23 and natural gas closed at $3.26 per million cubic feet (Mcf). Crude oil prices have increased 53 percent  and natural gas prices are up 24 percent since January.

Bank of America announced this week oil prices could reach $100 per barrel this year, anticipating demand to continue to grow putting more stress on supply and additional increases in price.

U.S. crude oil inventories have declined from a historic high of 540 million barrels in June 2020 to 459 million barrels this week, according to the Energy Information Administration (EIA) at the U.S. Department of Energy. The oversupply of oil last year created extremely low prices.

The Organization of Petroleum Exporting Countries and its allies (OPEC+) implemented production cuts of 9.7 million barrels per day last year, but modified the cuts by about 2 million barrels a day in May and continue through June and July. They will begin talks soon to increase exports even more beginning in August.

The International Energy Agency (IEA) has urged OPEC+ to start tapping its spare production capacity to bolster supply as demand rebounds. Goldman Sachs Group Inc. estimates the market is running a deficit of 3 million barrels a day, citing a lack of meaningful output growth. OPEC+ is still withholding as much as 5.8 million barrels a day from the market, according to Bloomberg.

EIA estimates global oil consumption at 96.2 million barrels per day (b/d) in May, which is an increase of 11.9 million barrels per day from May 2020 but 3.7 million barrels per day less than in May 2019. “We forecast that global consumption of petroleum and liquid fuels will average 97.7 million b/d for all of 2021, which is a 5.4 million b/d increase from 2020,” EIA stated.

Gasoline consumption is expected to rise, too, going from 7.8 million barrels b/d to 9.1 million b/d this summer (April to September) and average 8.7 million b/d throughout 2021.

EIA forecasts gasoline prices to average $2.92 per gallon this summer compared to $2.07 last year.

AAA says the national average this week was $3.072 per gallon nationally and $2.741 in Texas. The average price was $2.728 in North Texas, $2.793 in East Texas, and $2.698 in West Central Texas.

Alex Mills is the former President of the Texas Alliance of Energy Producers.