January, 2017

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US crude settles at $52.63, down 1%, as more US drilling revives concern about oil glut

CNBC

A worker on a Nabors crude oil drill near New Town, North Dakota.
A worker on a Nabors crude oil drill near New Town, North Dakota.

Oil prices fell on Monday as news of another increase in U.S. drilling activity spread concern over rising output just as many of the world’s oil producers are trying to comply with a deal to pump less in an attempt to prop up prices.

The number of active U.S. oil rigs rose to the highest since November 2015 last week, according to Baker Hughes data, showing drillers are taking advantage of oil prices above $50 a barrel.

U.S. crude futures settled down 54 cents, or 1 percent, at $52.63. Global benchmark Brent crude oil prices were down 32 cents at $55.20 a barrel at 2:33 p.m. ET (1933 GMT).

Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg, said “three factors that have been weighing on prices: the stronger U.S. dollar, the steady increase in U.S. rig counts and the (latest OPEC compliance data).”

When it comes to oil, don't forget about demand: Expert

When it comes to oil, don’t forget about demand: Expert   

The Organization of the Petroleum Exporting Countries and other producers including Russia agreed to cut output by almost 1.8 million barrels per day (bpd) in the first half of 2017 to relieve a two-year supply overhang.

First indications of compliance to that deal show members have cut production by 900,000 barrels per day (bpd) in January, according to Petro-Logistics, a company that tracks OPEC supply.

That suggests only 75 percent of the targeted cuts would be met, said Tony Headrick, energy analyst at CHS in Minnesota.

“There’s an apprehension about how big that cutback is going to be versus the strength in U.S. crude production,” Headrick said. “That gap is a little narrower than folks had anticipated more recently.”

Tamas Varga, analyst at PVM Oil Associates in London, said the news was “not very encouraging” because it implied that only 75 percent of the OPEC production cut target was being met.

What's next for big oil?

What’s next for big oil?   

Oil prices have remained above $50 a barrel since producers agreed the deal in December, incentivising drillers in low-cost U.S. shale producing regions to ramp up activity.

“In our view the strong rise in U.S. shale oil rigs is a good thing because it will be needed over the next three years as non-OPEC, non-U.S. crude production continues to be hurt by the deep capex cuts both past and present in that segment,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.

He estimated the U.S. rig count will continue rising at a rate of seven rigs per week over the first half of the year.

Analysts at J.P. Morgan said they saw a rise in oil prices beyond $60 a barrel in 2018 as unlikely.

“For prices to be supported above $60/bbl in 2018 would likely require continued OPEC output reductions that continue to tighten the market beyond Q3’17 – something that looks unlikely at this juncture,” they said in a report to clients.

Iran’s oil minister Bijan Zanganeh said on Monday he expected oil prices to remain at around $55 a barrel this yes, according to Mehr news agency.

The Rules Of The Crude Oil Market Have Changed

We gobbled up the CME Group’s recent whitepaper on Crude Oil,  loving all things Oil and Crude Oil futures related; and it is spot on (if not a little self serving) with the new dynamics in the energy sector due to increased supply and the US market’s ability to export that supply.

Remember that everything changed in the crude oil sector when the U.S. officially lifted the export ban on crude in 2015, making WTI Crude Oil (WTI = West Texas Intermediate) more on par with Brent Crude Oil.  Before this period, Brent was used as the international standard, simply because WTI crude (which is US crude oil) wasn’t able to be exported (much less moved out of Cushing, OK very easily); while Brent was shipped around the world without hesitation.  The CME’s in-depth article looks at just how much of an impact lifting the ban has had on the production, distribution, and price fluctuation for the crude oil business. Take a look at the price difference after the US lifted its ban on exporting crude oil, via the CME Group.

Oil Market

(Disclaimer: Past performance is not necessarily indicative of future results)

Crude Oil

You can look at that chart and see the spread roughly at the same level now as when the ban was lifted. But a lot of that has to be buying the rumor, selling the fact amongst traders. The export ban surely didn’t happen overnight, it was months and years in the making. The CME Group suggests this ban lift came from a sharp rise in oil production, going from producing 5.1 million barrels a day in January 2009, to 8.8 million in October 2016. At one point, it was at its highest in March of 2016, producing 9.9 Million b/d. That’s quite a jump, and would definitely help explain why supply is one of the reasons prices have pushed lower over the past two years. The argument is sound… we’re drowning in excess supply of this stuff, pushing down prices, hurting US companies and jobs which has let us ship it out of the country where it is wanted.

If that big increase in supply was the impetus, what happens when supply increases yet again? The CME shows us that according to the EIA, we should expect production to grow by at least another 3 million more barrels a day over the next decade.

Oil Market

The interesting part of this graphic is the breakdown of the different types of ‘US Oil’, with the gray representing the traditional Texas, California, etc. oil rigs, the blue the newer traditional Gulf Of Mexico production – and all those other colors the shale and fracking revolution. You can see from CME’s graph that the major production in oil isn’t coming from conventional oil, but all the alternatives out there like “Tight” produced from shale, sandstone and limestone formations.

Wherever its coming from – this growth in US production, combined with the lift on the ban, has re-energized the debate over which oil contract is the standard in crude oil contracts. Here’s the CME:

 

The WTI-Brent spread has become a true indicator of value for the U.S. crude exporters. With the spread trading between $1 and $2 per barrel discount to Brent, traders say that increased volumes of WTI linked crude oils may flow to countries outside of the US and Canada. Part of this is due to the relatively low cost of freight with traders able to benefit from the ability to offer a US bound cargo and a now a US origin crude oil export cargo as a single transaction to a ship owner. Without US crude oil exports being permissible, ship owners were previously only able to pick up US bound cargoes and struggled to find any return cargoes leaving their vessels out of place for subsequent voyages. Shipowners now have the choice of a back-haul crude oil cargo or a refined product cargo as the US exports both. This tended to result in higher freight costs to a charterer due to the lack of economies of scale (for the ship owner).

Further, the recent expansion of the Panama Canal allows for enhanced shipping alternatives for cargoes to transit from the U.S. Gulf to the Far East. The significant discounts for WTI compared to Brent from the past are unlikely to re-appear as any mispricing would be quickly re-aligned through a rise in U.S. crude exports, which was not the case in the past when U.S. crude remained non-exportable.

Cushing, Oklahoma and Storage Issues

If you’re familiar at all with the physical side of oil, you know that most of it ends up in the Oklahoma town of Cushing. It’s where most of the Shale and Texas Oil is stored until shipped out, but the recent uptick and changing dynamics has spurred changed on that front, via CME Group.

The U.S Gulf Coast comprises approximately 55% of the U.S. crude oil storage capacity, while Cushing comprises 13%. The infrastructure investment in the U.S. Gulf Coast has transformed WTI into a waterborne crude, with extensive export capacity. All in all, the Houston market has become export- focused, with a terminal network with storage capacity of 65 million barrels and an additional 20 million barrels of storage capacity projected to come into service in 2017.

Right on cue,  the CME Group has created a Crude Oil Storage contract. Each month, 7,000 contracts are sold auction still – which gives the buyers the right to store 1,000 barrels of oil off the gulf coast. The Wall Street Journal describes what happens next.

Once the contracts are sold through the auction, they can be bought and sold freely. At the end of the month, anyone holding a contract can use the storage space, which will hold the oil in either an above-ground storage tank or an underground cavern.

Of course, this is mainly for the players in the business….

So, who will use the oil-storage futures?

Producers, transportation companies and refiners all have exposure to commercial storage rates. A storage futures contract could allow those parties to lock in those costs ahead of time or trade them for profit.

Foreign companies might be interested too. Waterborne deliveries can be delivered to the Clovelly hub, along with oil from Texas and offshore Gulf of Mexico production.

Put this together and Cushing is no longer the crude oil storage capital is once was. Take a look at the change is U.S. working crude oil storage capacity.

Oil Market

What Does This All Mean?

Well, for one, it’s the CME tooting their own horn here, a bit. They would like nothing more than for the majority of Oil hedging and trading to be done on their own WTI Crude Oil Futures contract, versus the ICE’s competing Brent Crude Oil Futures Contract. What better way to convince you to trade it than point out how its supply is growing impressively both in sheer numbers, and in number of places producers can put it. With a more diverse storage geography in the US (plus the ban on exports being lifted), WTI can be sold to

US Crude settles at $52.75

CNBC

US crude settles at $52.75, down 43 cents, after EIA reports bearish oil, fuel stockpile data

Build in crude oil inventories

Build in crude oil inventories   

Oil prices fell on Wednesday after earlier shrugging off a report from the U.S. Energy Information Administration that showed the nation’s crude inventories rose and gasoline stocks increased sharply.

U.S. light crude settled down 43 cents at $52.75. Benchmark Brent crude fell 25 cents a barrel to $55.19 by 2:54 p.m. ET (1954 GMT).

Futures fell early in the day after builds in U.S. inventories reinforced expectations that increasing shale output this year would reduce the impact of production cuts by OPEC and other major exporters. However, they turned positive after the EIA report amid market strength.

Again Capital founding partner John Kilduff said there was little to cheer in the report, but oil futures can’t fight the strength on Wall Street on a day when the Dow crossed 20,000 for the first time ever and markets were broadly higher.

“It was a very bearish report, and it’s a cloud over this market, but it’s no asset class left behind at the moment,” Kilduff said.

Trump revives pipelines: Who wins & loses?

Trump revives pipelines: Who wins & loses?   

U.S. crude stockpiles rose by 2.8 million barrels in the week through Jan. 20, matching analysts expectations and roughly in line with an earlier report from the American Petroleum Institute.

U.S. gasoline futures fell to a session low after EIA reported gasoline stocks rose by 6.8 million barrels, compared with analysts’ expectations in a Reuters poll for a 498,000-barrel gain. It pared losses shortly after the report came out.

Distillate stockpiles, which include diesel and heating oil, increased by 76,000 barrels, versus expectations for a 1 million-barrel drop, the EIA data showed.

Oil prices have found support in recent weeks from plans by the Organization of the Petroleum Exporting Countries and other producers to reduce output.

Around 1.5 million barrels per day (bpd) has already been taken out of the market from about 1.8 million bpd agreed by oil majors starting on Jan. 1, energy ministers said on Sunday, as producers look to reduce oversupply.

Bernstein Energy said global oil inventories declined by 24 million barrels to 5.7 billion barrels in the fourth quarter of last year from the previous quarter. The amount remaining equates to about 60 days of world oil consumption.

Bearish on oil for the short term: Pro

Bearish on oil for the short term: Pro   

But as OPEC is cutting, U.S. shale output is rising.

U.S. oil production has increased by more than 6 percent since mid-2016, although it remains 7 percent below its 2015 peak. Output is back to levels reached in late 2014, when strong U.S. crude output contributed to a crash in oil prices.

President Donald Trump‘s promise to support the U.S. oil industry has encouraged analysts to revise up their forecasts of growth in U.S. oil production, which is already benefiting from higher prices.

A push by Republicans in the U.S. House of Representatives for a shift to border-adjusted corporate tax could help push U.S. crude prices higher than global benchmark Brent, triggering large-scale domestic production, according to Goldman Sachs.

— CNBC’s Tom DiChristopher contributed to this report.

Russia is China’s top crude oil supplier

Russia beats Saudi Arabia as China’s top crude oil supplier in 2016

By Chen Aizhu and Meng Meng | BEIJING

BEIJING Russia overtook Saudi Arabia in 2016 to became China’s biggest crude oil supplier for the first year ever, customs data showed on Monday, boosted by robust demand from independent Chinese “teapot” refineries.

Russian shipments surged nearly a quarter over 2015 to about 1.05 million barrels per day (bpd), the data showed, with Saudi Arabia coming in a close second with 1.02 million bpd, up 0.9 percent in 2016 versus the previous year. China is the world’s second-largest oil buyer and the fastest-growing major importer.

While Saudi Arabia counts China’s state oil firms as backbone clients through long-term supply contracts, China’s independent refineries – nicknamed “teapots” due to their smaller processing capacity – saw Russia as a more flexible supplier.

For the teapot plants, authorized to import crude oil for the first time in late 2015, shipments from Russia’s eastern ports are easier to process, coming in smaller cargo sizes at a closer proximity.

Russia may be able to maintain the top spot in 2017 as it expands exports of its East Siberian-Pacific Ocean (ESPO) pipeline blend crude. Saudi Arabia, meanwhile, is set to shoulder the lion’s share of supply cuts agreed to last year by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers.

“OPEC cuts means Gulf producers take a hit in terms of market share, even though most of their cuts are to Europe and US …Russia has an ESPO expansion coming up as well as supplies via Kazakhstan earmarked for China,” said Michal Meidan of consultancy Energy Aspects.

State-run Saudi Aramco is expected to look to a new refinery under state-run CNOOC to lift sales.

For December, Russia also held the top spot with supplies up 4.8 percent from the same month a year earlier at 1.19 million bpd. Meanwhile Saudi sales dropped nearly 20 percent from a year earlier to 841,820 bpd, data from the Chinese General Administration of Customs showed.

Total crude oil imports in December hit a record as refiners stepped up purchases ahead of a deal by oil-producing countries to reduce supply and bolster prices.

For the whole of 2016, imports gained nearly 910,000 bpd over 2015, the strongest annual growth on record and mostly driven by teapot buying.

Third-largest supplier Angola shipped 13 percent more crude last year versus 2015, while No. 4 seller Iraq recorded similar growth.

China also boosted imports from South American producers last year, with growth of 37.6 percent from Brazil and 26 percent from Venezuela, the data showed.

Imports from Iran expanded nearly 18 percent last year to a record 624,260 bpd, as Chinese state oil firms started to lift barrels from their investments in Iranian oilfields in addition to term supply agreements.

(Reporting by Chen Aizhu and Meng Meng; Editing by Kenneth Maxwell and Christian Schmollinger)

Crude Oil Futures – Weekly Outlook: January 23 – 27

© Reuters.  Oil settles higher on signs of tightening supplies© Reuters. Oil settles higher on signs of tightening supplies

Investing.com – Oil futures finished higher on Friday, logging a modest weekly gain with traders encouraged by signs that global supply is tightening in wake of a planned agreement by major crude producers to cut output.

On the ICE Futures Exchange in London, Brent oil for March delivery rallied $1.33, or about 2.5%, to settle at $55.45 a barrel by close of trade Friday.

London-traded Brent futures scored a gain of 4 cents, or approximately 0.1%, on the week.

Elsewhere, on the New York Mercantile Exchange, crude oil for delivery in March jumped $1.10, or around 2.1%, to end at $53.22 a barrel by close of trade.

For the week, New York-traded oil futures rose 5 cents, or nearly 0.1%.

Oil jumped on Friday after Saudi Arabia’s Energy Minister Khalid al-Falih, speaking at the World Economic Forum in Davos, said that 1.5 million barrels a day of the roughly 1.8 million in cuts pledged by OPEC and non-OPEC countries have already been taken out of the market.

The upbeat comments added to signs that the oil market is rebalancing.

Prices, however, finished off the session’s highs after data showed a sharp weekly rise in the number of active U.S. rigs drilling for oil.

According to oilfield services provider Baker Hughes, the number of rigs drilling for oil in the U.S. jumped by 29 last week to 551, the largest weekly increase since a recovery in the rig count began in June and the highest level in around 14 months.

The data raised concerns that the ongoing rebound in U.S. shale production could derail efforts by other major producers to rebalance global oil supply and demand.

In a monthly report issued this week, the International Energy Agency said OPEC production has slowed, declining by 320,000 barrels a day to 33.09 million barrels in December.

January 1 marked the official start of the deal agreed by OPEC and non-OPEC member countries such as Russia in November last year to reduce output by almost 1.8 million barrels per day to 32.5 million for the next six months.

The deal, if carried out as planned, should reduce global supply by about 2%.

Some traders remain skeptical that the planned cuts will be as substantial as the market currently expects.

While some major oil producers, such as Saudi Arabia and Kuwait, have so far showed signs that they are sticking to their pledge to cut back output, others, such as Libya and Iraq have ramped up production.

A monitoring committee charged with tracking adherence to the global deal is due to meet in Vienna for the first time on January 22.

Elsewhere on Nymex, gasoline futures for February rose 3.1 cents, or about 2.1% to $1.566 a gallon. It ended down about 2.9% for the week.

February heating oil tacked on 2.7 cents, or 1.7%, to finish at $1.645 a gallon. For the week, the fuel declined around 0.3%.

Natural gas futures for February delivery sank 16.4 cents, or nearly 4.9%, to $3.204 per million British thermal units. It posted a weekly loss of more than 6% on forecasts for warmer winter weather.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

Traders will also continue to pay close attention to comments from global oil producers for further evidence that they are complying with their agreement to reduce output this year.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, January 24

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, January 25

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, January 26

The U.S. EIA is to produce a weekly report on natural gas supplies in storage.

Friday, January 27

Baker Hughes will release weekly data on the U.S. oil rig count.

New Washington Reports Shows No Crude Oil by Rail in Grays Harbor

KBKW

A new report from the Washington State shows no crude oil traveled by railroad to Grays Harbor County in the 4th quarter of 2016. The Department of Ecology was tasked with releasing the “Crude Oil Movement by Rail and Pipeline Quarterly Report” by code adopted last summer (Chapter 173-185 WAC) which established reporting standards for facilities that receive crude oil by rail and pipelines that transport crude oil in or through the state. Additionally, the rule identified reporting standards for Ecology to share information with emergency responders, local governments, tribes, and the public.

This quarterly report for the reporting period October 1, 2016, to December 31, 2016, provides aggregated information on crude oil transported by rail to facilities in Washington, information on crude oil movement by pipeline, and information on crude oil spilled during transport and delivery for rail and pipeline.

In addition, information is provided about the volume of crude oil transported into the state by vessel, and eventually by pipeline. Although the report said that pipeline data was delayed and will be added later this month.

View the entire report here: https://fortress.wa.gov/ecy/publications/documents/1708002.pdf

A summary of the data shows:

  • Two regions of origin are reported: Alberta and North Dakota.
  • Three types of crude oil are reported: heavy, medium, and light.
  • The total volume of crude oil transported by rail during the quarter was 14,708,705 barrels (617,765,610 gallons).
  • The average weekly volume of crude oil transported by rail was 1,050,622 barrels (44,126,124 gallons).
  • The total number of rail cars moving crude oil by rail was 21,603 cars.
  • The average number of rail cars per week moving crude oil by rail was 1543 cars.
  • 1% of crude oil transported by rail was heavy crude, 5% was medium crude, and 94% was light crude.
  • Alberta was the region of origin for 6% of crude oil transported by rail, while North Dakota was the region of origin for 94% of crude oil transported by rail.

US Crude up 29 cents

CNBC

US crude settles at $51.37, up 29 cents as IEA sees oil market tightening

Jonathan Alcorn | Reuters
Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

Oil prices edged higher on Thursday, but swelling U.S. crude stockpiles limited the rebound from a one-week low after the International Energy Agency said oil markets had been tightening even before cuts agreed by OPEC and other producers took effect.

The IEA said that while it was “far too soon” to gauge OPEC members’ compliance with promised cuts, commercial oil inventories in the developed world fell for a fourth consecutive month in November, with another decline projected for December.

U.S. West Texas Intermediate crude oil settled up 29 cents at $51.37 per barrel, having dropped to a one-week low on Wednesday at $50.91 a barrel.

International benchmark Brent crude was up 34 cents at $54.26 a barrel by 2:33 p.m. ET (1933 GMT), after closing down 2.8 percent in the previous session.

A strong U.S. dollar limited oil’s advance.

RBC strategist: Oil will grind higher

RBC strategist: Oil will grind higher   

Prices tumbled to session lows after U.S. Energy Information Administration (EIA) data showed crude inventories rose unexpectedly last week as refineries sharply cut production.

U.S. commercial crude inventories rose by 2.3 million barrels in the week through Jan. 13 to 485.5 million barrels, well above the expectations of a 342,000-barrel decline.

The data also showed much larger-than-expected increases in stocks of gasoline and a surprise drop distillates inventories. Stockpiles of gasoline in the U.S. East Coast swelled to the highest weekly levels on record for this time of year, when refiners typically begin storing barrels ahead of summer driving season.

“At the end of the day, the focus is on the bigger picture and the bigger picture still looks positive which is why we are still up,” said Scott Shelton, energy specialist at ICAP in Durham, North Carolina.

“The bigger picture includes the OPEC/non-OPEC supply cuts and the IEA report, which was pretty supportive.”

Oil prices have gyrated this year as the market’s focus has swung from hopes that oversupply may be curbed by output cuts announced by the Organization of the Petroleum Exporting Countries and other producers to fears that a rebound in U.S. shale production could swamp any such reductions.

The head of the IEA, Fatih Birol, said in Davos, Switzerland, that he expected U.S. shale oil output to rebound by as much as 500,000 barrels per day over the course of 2017, which would be a new record.Oil and Gas

Futures Now: Oil slips on supply concerns

Futures Now: Oil slips on supply concerns   

It raised its 2016 demand growth estimate, and said the data indicated that rising demand was slowly tightening global oil markets.

Still, analysts warned that keeping the cuts was crucial, particularly as a resilient U.S. shale industry threatened to add more barrels to the market.

“Discipline and strict adherence to the new quotas will be needed probably throughout 2017 and beyond to see the long-awaited and sustainable rebalancing finally arrive,” PVM Oil Associates analyst Tamas Varga said in a note.

OPEC, which is cutting oil output alongside independent producer Russia for the first time in years, wants a lasting partnership with Moscow, Saudi Energy Minister Khalid al Falih told Reuters. He also said extending the deal for a full year if the market rebalances was not needed.

OPEC itself said its cuts would help balance the market, and said its output had already fallen in December. But it also pointed to the possibility of a rebound in U.S. output amid higher oil prices.

US Crude nearly down 2,7%

CNBC

US crude settles at $51.08, down nearly 2.7% on prospect of rising US shale production

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices fell to their lowest level in a week on Wednesday on expectations U.S. producers would boost output, while OPEC signaled a drop in the global oil supply surplus this year as the producer group’s output fell from a record high.

U.S. West Texas Intermediate (WTI) crude oil futures settled down $1.40, or 2.7 percent, at $51.08 per barrel.

Brent crude futures, the international benchmark for oil prices, were down $1.51, or 2.7 percent, at $53.96 a barrel at 2:34 p.m. ET (1734 GMT).

U.S. shale production is set to snap a three-month decline in February, the U.S. Energy Information Administration said on Tuesday, as energy firms boost drilling activity with crude prices hovering near 18-month highs.

February production will edge up 40,750 barrels per day (bpd) to 4.748 million bpd, the EIA said. In January, it was expected to drop by 5,900 bpd.

Too much OPEC optimism?

Too much OPEC optimism?   

“The petroleum markets have turned lower again in Wednesday trade amid talk that higher oil prices will translate into additional U.S. shale-oil production as a counter-balance to OPEC efforts to trim supply and reduce excess inventories,” Tim Evans, Citi Futures’ energy futures specialist, said in a note.

The Organization of the Petroleum Exporting Countries signaled a falling oil supply surplus in 2017 on Wednesday as the exporter group’s output slips from a record high ahead of a deal to cut supply and outside producers show positive initial signs of complying with the accord.

Under the agreement, OPEC, Russia and other non-OPEC producers have pledged to cut oil output by nearly 1.8 million bpd, initially for six months, to bring supplies back in line with consumption.

However, OPEC, in a monthly report, also pointed to the possibly of a rebound in U.S. output, as higher oil prices following supply cuts by other producers support increased shale drilling.

“OPEC’s regular dose of bullish rhetoric intending to prop up values has begun to wear thin,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note

OPEC, excluding Indonesia, pumped 33.085 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, down 221,000 bpd from November.

OPEC cut its forecast of supply in 2017 from non-member countries following pledges by Russia and other non-members to join OPEC in limiting output.

Risk in a few years of an oil price shock: Crescent Petroleum

Risk in a few years of an oil price shock: Crescent Petroleum   

OPEC now expects non-OPEC supply to rise by 120,000 bpd this year, down from growth of 300,000 bpd last month, despite an upwardly revised forecast of U.S. supply.

A committee responsible for monitoring compliance with the agreement meets in Vienna on Jan. 21-22.

The output cuts agreed by OPEC and others are likely to come largely from field and refinery maintenance, BMI Research said in a note. It said oil producers are expected to use lower volumes needed for domestic power generation in a bid to maintain export volumes.

“Sticking to output targets is important but export volumes from the participating countries are a much better indicator of how the cuts will affect the market,” it said.

“Participating members are keen not to sacrifice vital export revenue so are trying to find ways to limit domestic crude usage in order to prioritize filling their contracts to foreign refiners.”

Analysts forecast U.S. crude stocks fell by about 1 million barrels in the week ended Jan. 13. The American Petroleum Institute (API) will release its inventory report on Wednesday at 4:30 p.m. EST.

Norwegian oil and gas production up for the year

UPI

Preliminary data show a decline, however, from levels reported in November.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |   Jan. 17, 2017
Production from offshore Norway slumps in December, though full-year output recorded another consecutive year of gains, government data show. File Photo by A.J. Sisco/UPI
| License Photo

STAVANGER, Norway, Jan. 17 (UPI) — Total production of oil and gas in Norway dipped in December, though full-year output increased for the third year in a row, the government reported.

The government reported total preliminary production of oil, natural gas liquids and an ultra-light form of product called condensate at close to 2.1 million barrels per day on average for December, a 3 percent decline from November’s levels.

Norway is among the leading oil and natural gas suppliers to the European economy apart from Russia. Preliminary data for November showed a 2 percent increase from October.

Despite the dip of about 60,000 barrels per day in December, the Norwegian Petroleum Directorate said full-year 2016 production was higher than the previous year, even as lower crude oil prices put negative pressure on the industry as a whole.

“The oil production increased for the third consecutive year in 2016, and gas production was at the same level as the previous year, which was a record year for production,” the national regulator stated in its monthly report. “The high level is in part due to good regularity on the fields, and the fact that various efficiency measures have led to substantial reductions in operating and exploration costs.”

The full-year production figures follow confirmation from the NPD of a new discovery made by Norwegian energy company Statoil in the northern waters of the Norwegian Sea. Preliminary estimates put the size of the discovery at around 17 million barrels of oil equivalents at the low end.

NPD Director General Bente Nyland said last week that oil and gas production remained high and companies have adjusted well to a sea change in the energy sector brought on by lower crude oil prices. Cost reductions for some developments of as much as 50 percent, meanwhile, mean companies will remain profitable provided the industry shows a degree of patience.

The figures add to a lingering market scenario of oversupply. Members of the Organization of Petroleum Exporting Countries agreed to a short-term 2017 production ceiling of around 32.5 million bpd in an effort to pull the market back into balance.

Oil prices steady on weaker dollar, but doubts over output cuts linger

REUTER

By Henning Gloystein | SINGAPORE

SINGAPORE Oil prices were steady on Monday, supported by a weaker dollar, although doubts that OPEC and other producers would fully implement announced crude output cuts held the market back.

Brent crude futures LCOc1, the international benchmark for oil prices, were trading at $55.40 per barrel at 0758 GMT (02:58 a.m. ET), within 0.1 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $52.32 a barrel, also within 0.1 percent of their last settlement.

Traders said that oil received some support from a weaker dollar, which makes fuel purchases cheaper for countries that use other currencies domestically, potentially spurring demand.

After spending much of the second half of 2016 in an upward trend, the dollar has fallen around 2.5 percent against a basket of other leading currencies .DXY since its early-January peak.

The greenback is in particular focus this week as Donald Trump is set to take office as the next U.S. president on Friday.

“Oil pricing will be driven this week by the movement of the U.S. dollar rather than crude itself, with President-elect Trump’s inauguration … being the main event,” said Jeffrey Halley of OANDA brokerage in Singapore.

But traders said that doubts over full implementation of an announced crude output cut from major producers including the Organization of the Petroleum Exporting Countries (OPEC) and Russia were holding back oil prices.

OPEC has said it would reduce its output by 1.2 million barrels per day (bpd) to 32.5 million bpd from Jan. 1, and Russia as well as other non-OPEC members are planning to cut about half as much again.

However, Russian oil and gas condensate production averaged 11.1 million bpd from Jan. 1-15, two energy industry sources said on Monday, down just 100,000 bpd from December. Russia has committed to a 300,000 bpd cut during the first half of 2017 as a part of a global deal with OPEC.

Rising U.S. oil output is also preventing crude from climbing further.

Goldman Sachs said it expected year-on-year U.S. oil production to rise by 235,000 bpd in 2017, taking into account wells that have been drilled and are likely to start producing in the first half of the year.

Overall U.S. oil output stands at 8.95 million bpd, up from less than 8.5 million bpd in June last year and back at similar levels to 2014, when OPEC decided to start a price war against U.S. shale producers and sent the market into a tailspin.

(Reporting by Henning Gloystein; Editing by Sonali Paul and Christian Schmollinger)