Oil and Gas

Why oil’s not hitting lows? ‘Phenomenal’ demand

Oil demand is 'phenomenal': Analyst
Oil demand is 'phenomenal': Analyst

As concerns about the glut of oil in the world continues to weigh, questions have been raised over why the price of the crucial commodity hasn't fallen even further. For one analyst, the answer comes down to "phenomenal" demand.

Oil was trading slightly higher Wednesday, with Brent crude around $55.60 a barrel and U.S. West Texas Intermediate at $47.80. Both are some way off their year-to-date lows of around $46 and $42 respectively in March.

This comes despite the possibility of a last-minute deal over Iran's nuclear program, which has pushed prices lower over recent days amid expectations that an agreement would see an influx of Iranian crude on the market.

However, Amrita Sen, chief oil analyst at Energy Aspects, argued that oil demand was actually robust, and would likely prevent the oil price from falling further.

"Demand is phenomenal, as we are absorbing a lot of the oil that is being produced," she told CNBC Europe's "Squawk Box" Wednesday.

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"Product inventories are actually pretty low and U.S. refineries are actually coming out of (a period of) maintenance now, (as) the rest of the world goes in."

A gas flare burns an oil worker monitors a water tank while loading saltwater from an oil well storage tank near Sidney, Montana.
Daniel Acker | Bloomberg | Getty Images

Her comments come amid some concern about a build-up of oil in U.S. inventories.

The U.S. Energy Information Administration said Wednesday that crude inventories increased by 4.8 million barrels in the week ending March 27, from the previous week -- to their highest level for this time of year in at least the last 80 years.

But Sen argued that U.S. supply was being overdone, saying that American producers had "built up a lot less than people think."

"So, on balance I don't think we're going to go through the lows again this year," she said, adding that prices would likely trade sideways, and possibility towards the low $50s, "but that will form the base to go higher."

Analysts at Barclays Research agreed that oil prices would stabilise. "We expect supply and demand dynamics to help the oil market to bottom in the second quarter and gradually rebound over the rest of the year," they said in a note Wednesday.

And some experts are even more bullish. Goldman Sachs this month said it expected "the new equilibrium price" for oil to be around $70 a barrel for Brent, and $65 a barrel for WTI, although it does admit "the risks are skewed to the downside."

These levels imply gains of at around 27 percent for Brent crude from current levels, and a rise of about 38 percent for WTI.