Three Unexpected Reasons Oil Prices Are Lower Than Expected

Research firm Energy Aspects is slashing its oil price forecast by $15 a barrel for the second half of the year, citing three factors that don’t ordinarily play a major role in the game of predicting crude’s direction.

Higher rates: Interest rates have climbed about 4% over the past year, incentivizing companies to sell oil rather than storing it for the extra return they can earn on cash. Energy Aspects estimates this led to about 40 million barrels of extra crude flowing into the market and weighing on prices.

Brent contract change: A key price index that serves as a global benchmark for oil prices recently changed to include crude oil from the U.S. Gulf Coast. That’s depressing international oil prices because Gulf Coast prices have been driven down by oversupply from unplanned refinery outages in the Midwest.

Sweet-sour supply disparity: Saudi Arabia and other OPEC countries have been trying to push up prices by cutting production, but the crude they produce tends toward the sour, or higher sulfur, end of the spectrum. Countering those moves is outsized production gains from countries including the U.S. and Brazil that produce sweet crude, which is easier to refine because of its low sulfur content. Those gains are suppressing prices of major benchmarks, such as West Texas Intermediate and Brent, which refer to sweet crudes.