Oil prices improve over signs of fall in U.S. output

Elias Hubbard
July 17, 2017

"The problem is that there is someone waiting in the dark corner for OPEC - it's shale oil producers and whenever prices rise, they raise production", he said. The question remains, however, whether OPEC, with oil-reliant budgets already strained, could afford this tactic reversal now that they've suffered price lows for an extended period of time.

Some of the data last week provided hope as demand remains robust, especially in top consumers India and China. Indian crude imports in June were also higher at 4.38 mbpd, up 3.7 per cent YoY.

The report also said oil demand grew in Iran, Iraq, UAE and Qatar, with transportation fuels, notably jet fuel and gasoline, dominating the increase in all countries.

Analysts at Commerzbank said a reduction in the developed world's oil stocks was likely to continue, as long as OPEC did not further significantly increase its output. However, Tehran has signaled its intention to increase output before the current supply cut deal expires. Equatorial Guinea, which became an OPEC member in May, also resulted in the OPEC output increase by 0.15 mbpd. This roughly translates to an increase of about 0.4-0.5 mbpd from these two and negates almost half of the OPEC's 1.2 mbpd cut. OPEC members did not exactly cheat, but some of them were slow to reduce their output as agreed. Meanwhile, these same banks that were quick to revise their price outlook upwards are now just as quick to downgrade their earlier outlooks as the bleak reality firmly settles in.

Commerzbank's head of commodity analysis wrote in early December that the OPEC production cut would only serve to strengthen the rise in USA production, and he kept his outlook on oil prices unchanged: Weinberg forecast that crude would slide below US$50 this year, which is exactly what is happening right now. Markets Friday were supported further by a halt to crude oil exports from Nigeria from Royal Dutch Shell because of circumstances beyond its control. At 765 rigs, U.S. oil rigs have more than doubled from the same time past year and point to more increases in oil output.

"The slowing pace of increases combined with massive drawdowns last week on both official crude inventory numbers from the United States probably explains the positive sentiment in general at the moment". "We need to wait and see more production data before we can make any decision". The production has increased by 967,000 barrels per day since bottoming around last July. Then the oil price slide began-hesitant at first, and then steadier as the months went by.

"US crude inventories fell 7.6 million barrels last week, its biggest weekly plunge in 10 months, the US Energy Information Administration said on Wednesday". Gasoline demand inched up to 9.78 mbpd from 9.70 mbpd which led to stocks declining by 1.6 million barrels. Libyan crude oil production gained 17.5 percent. And due to the abundant supply, the price of oil now stands at currently less than $50 per barrel, around a third of the level of 10 years ago, when it topped a high of $147.

On the whole, given the selloff in the recent months, we mentioned last week that some short-covering was on the anvil.

Global benchmark price, the Brent crude, was up 7 cents to $48.98 a barrel and US crude traded at $46.55, up 1 cent.

Buying on dips is thus advised.

Other reports by Click Lancashire

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