OPEC January oil output rises despite Venezuelan decline

02 February, 2018, 21:52 | Author: Sheri Evans
  • U.S. oil prices fall after weekly supply data

The more oil prices rise, the bigger the eventual response from the shale drillers will be - which is why OPEC and its allies need to start planning an exit strategy from production cuts before they become self-defeating.

That is drawing investors' focus away from the rise in USA production.

Goldman Sachs drew an even more bullish conclusion, saying in a note to clients Thursday that "the rebalancing of the oil market has likely been achieved, six months sooner than we expected".

In the fourth quarter of 2017, Goldman estimates that the oil market was in a sizable supply deficit, on the order of about 1.1 million barrels per day.

Crude for March delivery rose 18 cents, or 0.3 percent, to $64.91 a barrel after ending the last session up 0.4 percent.

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The 2017 data is in: OPEC's success with its oil production cuts is now proved.

Oil rose for a third day after a survey showed strong compliance with output cuts by OPEC and others, offsetting concerns about surging U.S. production.

Brent oil prices held near $70 per barrel, supported by strong compliance with output cuts by oil cartel Opec and its ally Russian Federation, as well as expectations for strong demand growth in 2018.

OPEC shared this view, but then surprised the market in September 2016 by announcing their intention to cut supply.

Production has beaten its previous peak even though there are fewer than half the number of rigs drilling for oil compared with before the slump. At 418.4 million barrels, USA crude oil inventories are in the middle of the average range for this time of year. According to data in EIA's Weekly Petroleum Status Report, from late October through the end of 2017, exports of crude oil and inputs to Gulf Coast refineries remained relatively high, resulting in a continued decrease in Gulf Coast crude oil inventories.

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US crude, meanwhile, is flowing into global markets. The decline in Venezuelan production is also providing support.

Earnings season is upon us and worldwide oil companies are reaping the rewards of efficiencies and cost-cutting and a stronger oil price.

US commercial crude oil inventories increased by 6.8 million barrels from the previous week: for the first time in almost three months.

Aside from Canada, countries in Asia and Europe have been some of the largest recipients of US crude oil since the restrictions were lifted. Production at oil fields in the Jikharra area, which flows to the ports of Zueitina and Ras Lanuf, were impacted in early November due to protests. Earlier this month, U.S. President Donald Trump waived the application of nuclear sanctions, but warned that this could be the last such waiver. Output from the Gulf of Mexico surged and North Dakota, where most of the Bakken shale lies, pumped the most since August 2015.

The bank forecast returns from S&P GSCI enhanced commodity index at 7.4, 14.7 and 10 percent for 3, 6 and 12 months, respectively.

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