Global oil prices will continue to fall, experts say

Global oil prices will continue to fall as an overabundance of stocks shakes up the fuel market. The excess supply hammered the second-quarter earnings of fuel distributors, including Exxon Mobil Corp. and Chevron Corp.

Inventories are near the 97-year high reached in April as oil drillers boosted rigs for a fifth consecutive week, Bloomberg reports.

“The rise in supplies will add more downward pressure,” said Michael Corcelli, chief investment officer at Alexander Alternative Capital LLC, a Miami-based hedge fund. “It will be a long time before we can drain the excess.”

These developments come just two weeks after Kenya’s Energy Regulatory Committee (ERC) increased fuel prices

Pump prices in Nairobi currently stand Sh83.24 per litre for diesel and Sh92.93 per litre of Super Petrol. A litre of kerosene was increased by Sh3.41 to Sh61.45.

The jump in prices seeks to cover Kenya’s recently-introduced road levy. Based on the country’s new regulations, for every litre of petrol, Sh18 will go to the fuel levy, which is managed by the Kenya Roads Board. Sh19.89 will be excise duty. The petroleum development levy will get Sh0.40, and Sh0.12 will go to the petroleum regulatory levy. In his budget policy, Kenya’s Treasury Cabinet Secretary Henry Rotich on June 9, gave into pressure from the Roads Board to increase the levy by Sh6 per litre of super petrol and diesel.

The ERC said the purpose of the fuel pricing regulations is to cap the pump prices of the products which are already in the country so that the importation and other prudently incurred costs are recovered, while ensuring reasonable prices to consumers.

Following the slump in global prices, however, the price of West Texas Intermediate (WTI) crude dropped 3.9 per cent to $42.92 (Sh4,329) a barrel in the report week, and traded at $41.75 (Sh4,211).

WTI, also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing.

WTI fell by 14 per cent in July, the biggest monthly decline in a year. It’s down by 19 per cent since early June, bringing it close to the 20 per cent drop that would characterize a bear market.

U.S. crude supplies rose by 1.67 million barrels to 521.1 million in the week ended July 22, according to U.S. Energy Information Administration data. Stockpiles reached 543.4 million barrels in the week ended April 29, the highest since 1929. Fuel inventories expanded for a third week to 241.5 million barrels, the most since April.

Oil distributors, Exxon and Chevron missed profit and production estimates last quarter, earnings data showed July 29. The biggest U.S. energy companies followed Royal Dutch Shell Plc and BP Plc in posting lower profits as crude’s collapse continued to weigh on the industry. U.S. oil explorers have boosted the number of active rigs by 58 since the start of June to 374, with three added last week, Baker Hughes Inc. said July 29.

American producers have expanded drilling in recent weeks after idling more than 1,000 oil rigs since the start of last year.

Refineries typically slow down their operations during September and October to perform maintenance. Over the past five years, their demand for oil has dropped an average of 1.2 million barrels a day from July to October. “

Money managers are net short gasoline by a record amount,” Tim Evans, an Energy Analyst at Citi Futures Perspective in New York said. “I wouldn’t be surprised if the net shorts increased for another week, but on an intermediate perspective, you have to watch out. Gasoline looks oversold given its historic behaviour,” he added.

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