Oil Prices Rebound After EIA Reports Another Large Crude Draw

Ivan Schwartz
January 19, 2018

Overall, the cartel expects non-OPEC supply to jump by around 1.2m barrels a day during 2018.

Earlier, oil minister said the oil market was expected to re-balance towards the end of 2018 and any strategy to exit a deal on supply cuts between OPEC and non-OPEC oil producers would be gradual.

Higher oil prices are allowing USA shale producers to hedge and lock in drilling programmes. USA oil producers will ramp up production in the coming months.

Both benchmarks last week reached levels not seen since December 2014, with Brent touching $70.05 a barrel and WTI as high as $64.77.

The EIA sharply revised up its forecast for US oil production this year and next, predicting aver-age output of 10.3 million bpd in 2017 (up almost 300,000 bpd from last month's forecast) and 10.8 million bpd in 2019. Just in December, Venezuela's output sank by 216,000 bpd from November to 1.621 million bpd, the OPEC figures showed, a 29-percent drop from December 2016 levels.

Hedge funds boosted their net long position in the six most important futures and options contracts linked to crude and fuels by 67 million barrels to a record 1,399 million barrels in the week to January 9.

China imported 12 percent less crude oil in December than in November, when crude imports had hit a record high, sparking immediate concern about demand from one of the world's top consumers.

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"Prices. rallied on the back of noticeable de-stocking of crude inventories", said Fawad Razaqzada, market analyst at future brokerage Forex.com.

Currie and his colleagues also say that "oil inventories should be adjusted for demand levels to correct for a steadily growing oil market". That compares with an estimate of 9.3 million a day for 2017.

OPEC, Russia and Saudi joined forces in late 2016 against the threat posed by a boom in US shale oil, which had flooded markets and sent prices crashing, and assembled a coalition of 24 nations that would cut their own production.

Surplus oil in storage tanks across the globe has kept prices low even as tensions rise in the Middle East.

Referring to the December report, analysts of the organization reviewed up the global oil demand of 2017 with nearly 50 thousand barrels a day more. The production fall has hit oil exports - its only major source of foreign currency to repay debt - and refining, creating intermittent fuel scarcity in the country and at some of its main allies, such as Cuba. Saudi Arabia and Russian Federation have repeatedly stressed that when the time for the deal ends, this will be done gradually.

"This is evident by the 106 percent total compliance rate showed by OPEC and non-OPEC members to the agreement in 2017", Rashidi stated. Despite increased costs, OPEC cited a JPMorgan report that found US shale exploration and production companies could achieve "decent rates of return" at $60 per barrel even if costs rose by another 15%.

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