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Analysis Energy

American supply drives oil price down sharply

May 2, 2024 - Matthijs Bremer

The oil price came under significant pressure this week. Due to a declining manufacturing sector, the supply of crude oil in the United States is quite ample. In addition, discussions between Israel and Hamas are bringing calm to the oil market.

The price of oil has taken a significant downward step. On Friday, May 26, the oil price reached the highest point of the week at $89.50 per barrel. The price then declined until Wednesday, May 1. On that day, the oil price reached a level of €83.44.

As a result, the oil price loses 5% and reaches the lowest level in seven weeks. Overproduction in the United States remains a significant factor putting pressure on the oil price. Last week, reserves increased by 7.3 million barrels, as announced by the U.S. Energy Agency (EIA). This brings the reserves to the highest level since June 2023. This increase came completely unexpectedly. A Reuters survey indicated that experts expected oil inventories to decrease by 2.3 million. In total, the industry has stored 461 million barrels. American media reports a significant decrease in production.

Supply
In total, 87.5% of all oil is directly processed into fuel. In the same period last year, this percentage was 90.7%. This is partly due to an overestimation of demand, but mainly the oil supply has grown significantly. Data from the EIA shows that crude oil production increased in February from 13.15 million barrels per day. The previous month, the country produced 12.58 million barrels per day. This is the strongest increase in three and a half years.

Meanwhile, gasoline production also increased significantly, but not as strongly as oil production. In February, 9.4 million barrels were processed, compared to 9.1 million barrels the previous week. However, production remains on the low side. While crude oil reserves are fairly full, distillate reserves are decreasing by 1.6 million barrels per day. American trade media report that the fear of overproduction looms over the American market. This is partly because last year there was an overproduction due to fears of undersupply.

Peace Talks
Meanwhile, geopolitical tensions are reducing upward momentum. On one hand, Israeli Prime Minister Benjamin Netanyahu emphasizes that an invasion of Rafah is inevitable, as this is the only way Hamas can be defeated. On the other hand, Israel has sent a delegation to Egypt for negotiations on a ceasefire. International reports indicate that Hamas is considering a proposal from Israel.

So far, the diesel price is not decreasing along with the oil price. On Thursday, April 25, diesel was traded for €129.64 per 100 liters. The price then slightly decreased to €128.93.

Matthijs Bremer

Matthijs Bremer is a market specialist in pork, beef, and poultry meat at DCA Market Intelligence. He also monitors the protein transition, keeping an eye on developments in cultured meat and meat substitutes.
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