Oil prices drop off 3-year highs but strong demand supports

Ruben Ruiz
January 18, 2018

Imports to India, the world's third-biggest oil consumer, rose by about 1.8 per cent in 2017 to a record 4.37 million barrels per day (bpd) as the country boosted purchases to feed its expanded refining capacity.

Brent for March settlement added 23 cents to end the session at $69.38 on the London-based ICE Futures Europe exchange.

Meanwhile, Merrill Lynch on Tuesday said it expects the oil market to be under supplied by about 430,000 barrels per day (bpd) in 2018, up from their prior forecast for a 100,000 bpd deficit: it predicts Brent will average $64 per barrel this year, versus an earlier estimate for $56; the bank also raised its outlook for WTI to $60 a barrel from $52.

Still, traders and analysts said overall oil markets were well supported, and steep price falls unlikely. Price had moved lower in electronic trading Monday (http://www.marketwatch.com/story/oil-prices-dip-but-hold-around-a-3-year-high-as-dollar-slips-2018-01-15), which was a US holiday.

In addition, trading was thin on Monday due to a holiday in the United States.

While enjoying the extra revenues, the Organization of the Petroleum Exporting Countries, Russia and their allies remain wary of sending prices so high that USA shale production climbs even faster and the market becomes oversupplied again.

Markets may come under pressure from rising USA production, analysts say.

OPEC and its allies including Russian Federation agreed in November to further extend the production cuts negotiated a year ago for up to the end of 2018, with a review period in late June.

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Oil prices weakened following early gains on Wednesday, but remained underpinned by tightening supply and strong global demand.

The curbs have coincided with healthy demand and solid economic growth, and as a result the market has tightened, helping to push prices up more than 50 percent from June 2017.

"This rally has been driven first by robust fundamentals, with strong demand growth and high OPEC compliance accelerating", US bank Goldman Sachs said in a note.

"We're seeing the reality of strong demand and declining supplies".

Oil prices ended higher on Wednesday ahead of the release of USA government data that was expected to show a ninth straight weekly drawdown in crude inventories.

Investigations also showed that USA crude stocks fell by 11.2 million barrels in the week to January 5 to 416.6 million barrels, industry group, the American Petroleum Institute, said on Tuesday.

However, most analysts still expect USA output to break above 10 million bpd soon.

Other reports by GizPress

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