Market Research News

Oil Prices Fall as Stocks Increase and Chinese Demand Unsure

  • August 24, 2016
  • By Pavan Lipare
  • 0

Oil prices fall Wednesday due to a buildup of U.S. crude inventories and a potential reduction in demand by China. Beijing has taken action on alleged tax evasion in the Chinese oil industry. There also appear to be fears of an oversupply in the U.S. oil market due to crude stocks increasing.

oil prices fall

Oil Prices Fall as Crude Stocks Rise

U.S. crude stocks rose unexpectedly last week, which resulted in fears of oversupply causing price drops in the wake of recent recoveries to over $50 a barrel. This was in spite of gasoline stocks dropping sharply and distillate stocks remained steady. There are also worries that the Chinese market might suffer because of a Beijing clampdown focusing on independent oil refiners, known in the industry as teapots. Why should oil prices fall because of this?

Refinery Teapots Under Threat For Tax Evasion

These small refiners had obtained government crude import quotas and licenses last June begun to import crude. As a result of this, Chinese crude demand had increased, tending to drive prices up. The Chinese government’s action to stop tax evasion in the industry was centered on these ‘teapots’, thus threatening to reduce Chinese demand.

If demand by these independent operations suddenly reduces, then Chinese demand in general would also fall – right on top of an oversupplied market. This is sure to cause a rapid drop in crude prices. Even now, International Brent crude futures were trading at 0614 GMT (0214 Eastern) at 1.3% lower (63 cents) than their previous close. West Texas Intermediate was down 1.5% (72 cents) to $47.38 a barrel.

OPEC Meeting September: Will Oil Prices Fall or Not?

This would wipe out Tuesday’s rise, after Iran sent signals of support for joint action to maintain crude prices.  However, there now doubts that next month’s OPEC meeting in Algeria will result in any such agreement. Iraq’s Prime Minister, Haider al-Abad, has already indicated that the Iraqi government would not be retraining crude output, and would not support any OPEC agreement to do so in order to increase oil prices.

Neither does it seem likely that Saudi Arabia will reduce production. That is because production of American shale oil is expected to increase shortly. It is believed that $45 per barrel is not far away – perhaps within a few days. If oil prices fall then that may increase demand so they rise again!

About Pavan Lipare

Pavan Lipare is a market research analyst at Market.Biz. His job description involves performing research and gathering data to market a company's products. He does it by collecting data on consumer demographics, needs, preferences, buying habits, market growth and market failure.This data is collected by a variety of methods including questionnaires, interviews, market analysis, literature reviews, focus groups, surveys and public opinion/polls. These methods even further help to determine a company’s position in the marketplace.