Oil prices weakened in the last week of August as traders discounted factors that had been powering the earlier rise. There was still price volatility and the benchmark Brent crude plunged $0.60 a barrel on 22 August before staging a rally. Brent prices are below $16 a barrel for the first time since June.
Worries about a shortage of light crudes due to the crisis in Nigeria have receded. The government has moved to crush the oil workers strike and output has recovered to around 1.5 million barrels a day (b/d) with little new impact on exports. Nigerian production has been down by 400,000- 500,000 b/d since the start of the strike. North Sea supplies are also down by about 550,000 b/d due to summer maintenance work. This has not led to higher prices because there is plenty of unsold oil available in the spot markets, analysts say.
According to an analysis by Petroleum Intelligence Weekly (PIW), the price softness reflects regular seasonal factors. This year, the September maintenance schedule of refineries will cut into crude demand as usual. PIW says more than 1 million b/d of refinery closures in Europe, the US and Japan are expected during September which will weaken demand. The closures will coincide with a rebound in North Sea output to 5.1 million b/d in September from an average of 4.55 million b/d in August.
If the pattern of recent years is repeated, product demand should start to outpace both production and refining in November and December, PIW says. Most analysts expect supply pressures to appear in the fourth quarter which should lead to a hardening of prices, particularly if OPEC adheres to its current quota discipline.
A rogue factor in these calculations is the impact of an easing of sanctions on Iraq’s oil exports. There is no early prospect of this but progress has been reported in talks to allow the flushing of the export pipeline across Turkey. This would allow Turkey to use 150,000 b/d of Iraqi crude for a six-month period which could begin as early as the end of September, PIW reports.