An anticipated increase in oil supplies has pushed prices back to levels traders haven’t seen since before the war in Iran, but industry analysts predict markets could tighten again as demand and production return to normal.
When the war in Iran started and the Strait of Hormuz was effectively closed, many crudes were selling at record premiums, with the benchmark Brent crude hitting US$126.41 per barrel due to concerns over tight supplies.
However, on Friday, Brent futures for August were trading at around US$72 per barrel, its lowest level since the end of February.
“The mini tsunami currently seen following the reopening of the Strait of Hormuz has moved the market from missing barrels to choking on barrels, so the near-term focus will be squarely on this wall of barrels and how long it will take for it to be absorbed,” analyst Ole Hansen, of Danish investment bank Saxo Bank, told Reuters.
Iran is also set to boost oil sales following the signing of a 60-day interim deal with the U.S. aimed at ending the war.
Prior to the start of the conflict, about 20 per cent of the world’s supply of oil and liquefied natural gas flowed through the Strait of Hormuz.
The anticipated return of more Middle East oil has also caused discounts for European and West African grades to widen this week, along with Western Canada Select, which was trading at around US$100 per barrel in early April. On Friday, it was trading at under US$60 per barrel.
Despite the plummeting oil prices, it will take time to trickle down to lower gasoline prices for Canadians, according to Dan McTeague, president of Canadians for Affordable Energy.
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In Calgary, where gas was selling for around $1.52 per litre at many stations earlier this week, by Thursday it had jumped up by about 10 cents per litre — just ahead of Canada Day.
“Average prices in Canada are ranging in the $1.57 to $1.58 vicinity. That’s a lot less than what we might have otherwise expected given the severe energy crisis caused by the US actions in the Persian Gulf,” said McTeague.
“But for the summer, we’re probably going to see a five to seven cent decrease to come (but) it will not be as cheap as last year when we were paying $1.35, $1.36.”
“Of course, with the federal government’s excise tax, removing 10 cents a liter plus HST or GST, depending on where you are in the country, it’s making things a little bit less difficult,” McTeague said.
Despite the recent decline in oil prices, McTeague said “the inventories (of oil) have been badly depleted during the past 115, 120 days of this war. So the fact the world is now short about 1.5 to 1.7 billion barrels, that will take months to recover.”
“We could get a bit of a surprise shock as soon as the futures market wakes up to the reality that short selling during a period of extreme tightness isn’t going to last,” McTeague added.
With files from Reuters
To avoid driving very far, buy EV
“Blame the war” is just the lazy headline. Refinery maintenance, the summer blend switchover, and a weak dollar move prices too…they just don’t make a dramatic story. But what do I know I’m just a Sheep in a Clog.
To avoid gouging, buy an EV.
Avoid buying gas in Cochrane Alberta. Usual ripoff bunch of crooks.
Albertans shouldn’t be getting gouged at the pumps. We never have a shortage here.