Oman crude oil on the Dubai Mercantile Exchange increased for the fifth consecutive month last month and hit its highest level since last October, as global markets started to rebalance for the second half of the year.
The monthly average price of the DME for last month, which is used by Oman and Dubai to set their official selling price, was US$46.60 a barrel (August-loading crude) and up $2.27 or 5 per cent from the May monthly average.
Oman crude traded in a range between $44.70 and $48.80 over the month and expired at $47.76 – an increase of more than 100 per cent from the multiyear low of $23.72 in January.
Production outages in countries including Canada, Nigeria and Libya during the second quarter have removed the glut of supply from the market, leading to a number of forecasters predicting a much more balanced outlook for the remainder of the year.
The International Energy Agency (IEA) predicted in its report last month that the oil market would be balanced in the second half of this year, noting that there had been the “first significant drop” in global oil supply since 2013.
Likewise, in its monthly bulletin, Opec said that it sees the market in a balanced position by the end of the year, citing declining production and steady demand growth for this year as a whole.
In the second quarter of the year, Oman crude averaged $43.51 per barrel, an increase of 38 per cent from the $31.43 average in the first quarter of the year, but some see the price rally stalling in the short term amid a weaker outlook for refined products.
The investment bank Morgan Stanley has cautioned that the uncertainty surrounding global economic growth could translate into weaker demand for oil.
“The end result is likely to be run cuts, with some signs already emerging for the third quarter,” the bank said in a report.
“We will watch closely as the market shifts to trading September and October crude for further signs of physical market weakness in oil markets,” it said, referring to the possibility that refiners may scale back on crude-oil runs.
Meanwhile, Britain’s shock decision to vote to leave the European Union has so far only had a limited effect on oil prices, despite warnings of dire economic consequences.
Morgan Stanley said that the leave vote reduces the probability of a surprise improvement in oil demand while lifting downside risks that could delay any sustained market rebalancing.
“However, our oil demand and price estimates were already skewed cautious,” the bank said. “For near-term oil, we remain most concerned about product oversupply, China demand, the macro outlook and the likely return of production.”
The new September contract on the DME was just above $46.50 a barrel on Monday.
Paul Young is the head of energy products at the Dubai Mercantile Exchange.
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