Oil's rout is over, hail the return of $100 crude! Maybe

Cornelia Mascio
Gennaio 22, 2018

The Energy Information Administration has projected that US oil production could average 10 million barrels a day in 2018, surpassing the previous record set in 1970. According to the Weekly Petroleum Status Report by the EIA, US commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, of the week ending January 12 decreased by 6.9 million barrels from the previous week.

Meanwhile, gasoline reserves in the country increased by 3.62 million barrels, distillates - decreased by 3.89 million barrels.

Crude recently rose above $70 per barrel for the first time since 2014 after OPEC and non-OPEC countries agreed to extend their combined cutbacks until the end of this year.

Production was down 9.49 million bpd at the start of 2018, as the cold weather prompted a shutdown on some production.

"If prices remain high, it is United States shale producers who are benefiting more than the Opec producers but if Opec doesn't do anything, they will also lose out, so they are basically treading a thin line between helping themselves and helping everybody else including shale producers", Mr Manibhandu noted.

Oil prices accumulated a more than 1-percent decline this week, pressured by USA production growth, despite the variety of bullish demand forecasts and data about tightening global supply.

Overall non-OPEC supply is expected to increase by 1.7 million barrels per day in 2018, up from 0.7 million bpd past year.

U.S. gasoline and diesel are both the most expensive they have been at this time of year since 2014 and, in contrast to the normal seasonal pattern, pump prices are already rising.

Separately on Sunday, the UAE's Oil Minister Suhail Al Mazroui said he expected a rebound of shale oil supply and that Opec producers were not underestimating its impact on the market, according to Reuters.

The Paris-based IEA said in its latest Oil Market Report from December that "On considering the final component in the balance-non-OPEC production-we see that 2018 might not be quite so happy for OPEC producers". This is the highest level for the past three years.

The recent strong rally in global benchmark oil futures paused last week, bringing to an end a four-week period of gains which had seen prices rise by more than 10% since December. In the past such agreements have tended to amount to little as Opec members have often cheated on production quotas to maximise revenues. Since then, US crude storage has shrunk from 31 to only 24 days of coverage.

Mr. Falih-the de facto leader of OPEC-gave the most explicit call for the 14-nation cartel and 10 nonmember allies to keep supporting the oil market into 2019. "OPEC are fearful of not only the shale response, but of deep water and of oil sands from Canada". It can't cover global demand growth all by itself. Rather than flooding the markets with their shale output and causing the oil prices to decline, they are likely to plan their output expansion judiciously, conserving much of their cash flows for capital investments in the future years.

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