U.S. oil prices fell nearly three percent on Monday as Canadian wildfires moved away from production facilities in the country’s vast oil sands reserves. The fires sweeping through rural Canada, which started May 1, had previously raised prices by blocking over one million barrels worth of daily crude capacity.
Brent crude, the global oil benchmark, was down $1.76, or 3.8 percent, to $43.61 a barrel, while West Texas Intermediate crude, the U.S. benchmark, closed down $1.22, or 2.7 percent, at around $43.44 a barrel. The price drops also came from a strong U.S. dollar, in which oil is traded, and anticipation that brimming U.S. crude inventories would build to record highs. Oil prices started on the rise this morning as one-third to nearly half of Canada’s 2.5 million barrels a day in oil production was blocked by the fires. Almost all of Canada’s crude taken from the oil sands is exported to the United States.
“A reversal in the U.S.-dollar will continue to weigh on commodity markets. With concerns easing over Canadian oil supply disruptions, crude oil could come under additional pressure,” ANZ Bank said, according to Yahoo Finance.
A convoy of cars flees Fort McMurray as fires continue to devastate the oil sands region of Alberta, Canada pic.twitter.com/VtkIvBOmMT— AFP news agency (@AFP) May 7, 2016
Experts are saying a $45 to $50 Brent represents a balanced market, and analysts warned that the recent rise in oil prices wouldn’t last and market conditions remained weak due to an ongoing production glut.
“We believe that support to prices should remain short-lived. The market remains awash with oil as rising Middle Eastern output is more than offsetting declining US shale production and the various temporary disruptions,” Norbert Ruecker, head of commodities research at Julius Baer, said to City A.M.
As of now, the extent of the fire damage to oil production facilities and supply outages remains unknown, although Canadian officials, who got their first look at the nearby oil sands town of Fort McMurray since the start of the fire, remarked that almost 90 percent of the buildings had been saved. Despite these optimistic reports, experts anticipate several weeks of facility shutdowns as pipelines that were close to the wildfires are inspected. Evacuees also need to leave the plants before the staff can return.
The future of oil prices remains uncertain in the midst of a global production glut. Despite falls, prices have recently been on the rise in the long-term, as CNBC News noted.
“Oil prices have risen more than 70 percent since hitting 12-year lows of around $27 or lower in the first quarter, supported by falling U.S. production, unexpected supply constraints in Libya and the Americas as well as a weaker dollar.”
Though the wildfires eroded millions of barrels of crude oversupply per day from the market, there remains an enormous amount of crude in storage. U.S. commercial crude stockpiles rose last week for their fifth straight week, with total inventories for the U.S. increasing by 500,000 barrels to a new record high of over 543 million barrels. With a large amount of crude available, refiners have been producing enormous quantities of gasoline and diesel, which may surpass current demand in spite of the U.S. summer driving season.
The Canadian fires had previously forced three large Canadian oil firms to say they would be unable to deliver on contracts to purchase Canadian crude, but officials showed optimism as firefighters managed to drive the flames away from the oil sands, though thus far it has not been possible to restart operations.
Goldman Sachs predicted a long-term view of $50-$60 for WTI. Markets also have their eye on Saudi Arabia, the world’s biggest oil exporter, where a government reshuffle over the weekend, which saw the departure of the long-time Saudi oil minister Ali al-Naimi in favor of Khalid al-Falih as head of the newly-established Ministry of Energy, Industry and Mineral Resources, as The Inquisitr previously reported.
[Photo by Scott Olson/Getty Images]