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$50 Oil Might Not Last to the End of 2016

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Hold off on celebrating the recent surges to more than $50 per barrel in WTI and Brent crude prices. First, consider what’s behind the increase.

The simplest explanation is that supply disruption is to blame. In the past few weeks, the world has experienced a bevy of supply disruptions.

Wildfire in Alberta and militant attacks in Nigeria have caused the fate of crude supplies to become unpredictable and ever-changing. A decrease in U.S. supply has helped a little. But, a 400,000 barrel per day slump in Canada and the Nigerian militants’ plan to bring the country’s production down to nothing just cause harm to the supply.

The Energy Information Administration reports that the U.S. is currently undergoing the biggest unplanned disruption in global oil supplies within the last five years. This has encouraged a rise in oil prices.

According to a statement made by the EIA, “Unplanned global supply disruptions averaged more than 3.6 million barrels per day in May 2016, the highest monthly level recorded since EIA started tracking global disruptions in January 2011.”

Between the months of April and May, disruptions swelled by 800,000 barrels per day as increased outages (in Canada, Iraq, Libya, and Nigeria) offset decreased outages (in Brazil, Ghana, and Kuwait). The EIA says that the disruptions supported a month-over-month escalation of $5 a barrel in Brent crude oil spot prices in May.

That aforementioned $5 per barrel would increase the average Brent prices of $47 per barrel in May to the prices over $50 per barrel. On June 8th at market closing, Brent was $52.51 a barrel.

Article written by HEI contributor Briana Steptoe.

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