After it was revealed that oil stockpiles are rising in the U.S. oil prices fell sharply in the U.S. as well as in the other parts of the world. This is a cause for concern as OPEC has shown continued increase in production.
Jonathan Price of Nikko Holdings says, "Oil is both over bought and over supplied."
According to the data released by Genscape Inc., the key U.S delivery hub, supply levels have increased by 871,000 in comparison to last week. Economists are of the opinion that inventory levels will fall in concurrence with the decreasing price of oil in the U.S.
Mr Price added, "According to a report released by Reuters, the daily output for the month of April had increased by 170,000 barrels a day. OPECs total production could have been much higher but it was prevented due to the outage in Kuwait, UAE, Nigeria and Venezuela."
The U.S crude benchmark went down by 2.5% and ended at $44.78 per barrel on the New York Mercantile Exchange. The global Brent also registered a downfall of 3.3% and ended at $45.83 at the ICE Futures Europe Exchange.
Analysts have already begun to caution businesses regarding the surplus of refined fuel products. It is quite likely that gasoline will also register a decrease in demand. This is cause for concern as refineries have already begun to increase gasoline output in the hope of an increased demand.
"The refineries are pushing production without taking demand in perspective. This could lead to an oversupply of products," says Price.
Currently, production is being driven by financial pressure. The revenue of service companies has reached unsustainable levels and these companies are reacting by increasing demand.
More recently, Energy Aspects, a London-based research consultancy, said that many key players are experiencing losses. Giants like Schlumberger Ltd. and Halliburton Co. have registered operational losses. Halliburton also announced that on Monday the company will formalize its takeover of Hughes Inc. at a cost of $35 million.
Both gasoline and diesel have registered a drop. While gasoline went down by 2.6% and ended at $1.5628 per gallon, diesel went down by 2.2% and ended at $1.3555 per gallon.
