Oil Prices Edge Up Ahead of US Stockpile Data

Oil stable on expectations of extended OPEC-led production cut

On Tuesday the International Energy Agency said supply and demand in the oil market are close to matching up but warned rising USA supply could mitigate the OPEC-led production cuts.

"We think the rebalancing is here and the rebalancing will continue", Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC on Tuesday. Crude production was down 535k bpd compared to April 2016, the largest year-on-year (y-o-y) decline in almost three years.

For 2018, OPEC revenues are projected to be $595 billion, with an increase in forecast crude oil prices, coupled with higher OPEC production and exports, contributing to the rise in overall earnings.

The agency expects Indian demand growth to be around 200,000 bpd as the state demonetization policy will probably lower consumption this year.

Crude oil prices retreated on Wednesday, weighed by renewed concerns that US production is undercutting the global oil cartel's efforts to put the market back to balance.

U.S. shale producers have kept oil prices below Saudi Arabia's target of $60 a barrel, with supplies coming back online at faster rates than expected.

Matt Smith, director of commodity research at ClipperData, said the U.S. Gulf Coast led refinery activity higher.

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Saudi Arabia and Russian Federation said earlier this week that they would support extending the agreement for nine months, but some analysts and investors have said that may not be enough.

That spread has been tightening since OPEC agreed to production cuts in November, making USA cargoes more competitive.

He said, "They might agree to it and later on decide that they need more money and then they just start pumping out more oil".

According to Rystad Energy, no more than 500,000 bpd of December 2017 production are at risk should the WTI price drop to US$30. In an interview with Reuters, the national oil company chairman said the company has returned to parts of the Sirte basin for the first time in more than two years.

"Basically US supply is coming on faster than we anticipated".

An increase in USA shale output has limited the effectiveness of the producers' deal. According to a Rystad Energy analysis, since 2013, the average wellhead breakeven price (BEP) for key shale plays has dropped from US$80/barrel to US$35/barrel.

Iraq is OPEC's second-largest producer after Saudi Arabia, but so far has been resistant to an aggressive cut given its reliance on oil revenues to fund its economy.

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