Oil surges to highest since 2014 as global stocks tighten

Mae Love
January 13, 2018

USA crude stockpiles dropped to 419.5 million barrels last week, the lowest level since August 2015, according to the Energy Information Administration.

Traders and market watchers for much of the week said they expected U.S. President Donald Trump to go against the principles of the Joint Comprehensive Plan of Action and not extend waivers to Iran. Analysts said that could have been the result of extreme cold temperatures across the United States.

"This year's rapid rise in oil prices, which hit $70 this week, is backed by strong demand growth and a fall in oversupply on the back of the OPEC and non-OPEC pact, not only by political tensions, Mazroui said".

"But market participants could also use the sharp drop in production as an excuse to buy", said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany.

On a day when US commodities benchmark West Texas Intermediate (WTI) traded at $63.24, the highest in more than two years, the EIA came out with new production figures.

The price for Brent crude oil was down 0.35 percent at 9:19 a.m. EST to $69.02 per barrel. Brent touched $69.29 in late Tuesday trading, the highest since May 2015.

In addition to the OPEC and non-OPEC production cuts of 1.8 million barrels per day (bpd) that are due to last until the end of 2018, oil prices have found support from eight consecutive weeks of USA crude inventory drops.

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Craig at Platts, meanwhile, said gasoline demand could inch lower and it may be a matter of time before oil prices reverse course. Analysts warned the market is not paying enough attention to USA production increases.

On prices, the agency said Brent, the benchmark for North Sea crude oil spot prices, is forecast to average $60 per barrel this year and $61 per barrel in 2019, after experiencing a sharp run up last year. Also, the dollar fell in a broad sell-off after a report that China was ready to slow or halt its USA treasury purchases.

The greenback-denominated commodity has also benefited from weakness in the dollar, which neared a one-week low on Thursday, as it makes oil cheaper to buy for holders of other currencies.

USA production growth is estimated at 1.5 million bpd in 2018 and 1 million bpd in 2019, with Canada and Brazil expected to contribute combined growth in both years of some 400,000 bpd.

And US gas production will rise - the EIA says "Dry natural gas production is forecast to average 80.4 billion cubic feet per day (Bcf/d) in 2018, a 6.9 Bcf/d increase from the 2017 level, which would be the highest year-over-year increase on record".

The Energy Information Admin is out with its US inventories report at 10:30 am ET. As U.S. shale producers blaze ahead at turbo-speed, the EIA's number crunchers have taken note.

Eagle Ford production is expected to be from 1.2 million bpd to 1.3 million bpd this year and next, which EIA said is slightly above the 2017 level.

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