Why the Brent Crude Oil Price Is Down Today

oilWhy the Brent crude oil price is down today, July 22, 2015: The Brent crude oil price and WTI crude oil price dipped lower today (Wednesday) after an unexpected rise in U.S. reserves. The supply data adds to the worldwide glut that has deflated prices over the last year.

By 12:45 p.m., the Brent crude oil price was down 1.07% to $56.43 a barrel. The international benchmark has fallen 0.4% this week and 9.7% so far this month.

WTI oil prices were hit harder during midday trading. The U.S. benchmark ticked down 2.06% to $49.81 a barrel, sinking below the $50 mark for the first time in more than four months. It's lost 0.9% since Monday and 13.2% since July 1.

Here's a breakdown of why the Brent crude oil price is down today...

One Reason Why the Brent Crude Oil Price Is Down Today

The main reason why the Brent crude oil price is down today is the U.S. Energy Information Administration's (EIA) surprisingly bearish supply report.

This morning, the EIA said U.S. oil stockpiles rose by 2.5 million barrels to 463.9 million barrels last week. Analysts polled by energy research firm Platts had projected a fall of 1.9 million barrels.

The data defies the typical summer trend for crude oil supplies. Reserves usually fall during this time of year as refineries run at high rates processing oil into gasoline for the summer travel season.

"The most surprising thing is the build in crude oil inventory," explained Andy Lipow, president of Houston-based energy consulting firm Lipow Oil Associates, to The Wall Street Journal. "This has got to be concerning for the market, as in six weeks we're going to start with refinery maintenance, reducing demand for crude oil."

But according to Money Morning Global Energy Strategist Dr. Kent Moors, demand will keep rising over the long term, and short-term drawbacks like today's are to be expected.

That's because the WTI and Brent crude oil prices will follow a "ratcheting" pattern throughout the rest of the year...

Why the Brent Crude Oil Price Will Move Higher in 2015

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Because the cost of oil is measured in U.S. dollars, many other factors can depress prices. That includes rising interest rates and the dollar's strength. These influences cause knee-jerk downward movement in prices.

But the Brent crude oil price will gradually increase thanks to growing demand and shrinking supply.

"One thing is clear," Moors explained. "The ratcheting effect I have been talking about - in which oil has an overall trajectory in one direction (in this case up) despite volatility in the other - is taking shape."

Still, many other analysts claim DUC ("Drilled but Uncompleted") wells will keep bringing down the international benchmark's price.

They assert that any surge in prices will tempt companies to complete these unfinished wells to earn more revenue. This extra supply would flood the market and consequently decrease prices again.

But those "experts" couldn't be more wrong. Here are the two biggest reasons why...

Alex McGuire is an associate editor for Money Morning who writes about oil and natural gas. You can follow him on Twitter at @AlexMcGuire92.

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