Oil prices dip as US output rises, but still on pace for monthly gains

CNBC

  • Oil markets remain supported by OPEC-led production cuts.
  • A weakening dollar has also supported crude futures.
  • However, U.S. production is expected to hit 10 million barrels per day soon, and Canadian output is also rising.

Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

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

Brent crude oil prices eased below $70 a barrel on Monday as rising U.S. output undermined efforts led by OPEC and Russia to tighten supplies, but prices were still on track for a monthly gain.

Brent crude futures were down 92 cents, or 1.3 percent, at $69.60 a barrel by 10:58 a.m. ET (1558 GMT), while U.S. West Texas Intermediate (WTI) crude futures fell 79 cents, or 1.2 percent, to $65.35 a barrel.

So far this month, the Brent crude price has risen by 5.5 percent through last Friday’s close.

One of the key drivers has been the dollar, which has lost about 3 percent against a basket of major currencies so far this year.

Prince Alwaleed’s release is a relief for oil  

The decline was exacerbated last week when U.S. Treasury Secretary Steven Mnuchin suggested President Donald Trump‘s administration favored a weaker currency.

A falling dollar tends to support oil, which is priced in the U.S. currency, by making it cheaper for holders of other currencies.

Support has also come from a large premium in the front-month Brent oil contract over those for future delivery, as investment in crude futures and options reached a new record high last week.

“The market is bullish. One side that could correct significantly could come from the strength in the U.S. dollar,” PVM Oil Associates strategist Tamas Varga said.

“Undoubtedly, whatever the strategy is of Donald Trump and his finance ministry, they managed to support oil prices in the last week by talking the dollar down, so if we see a big (upward) correction in the dollar then we’ll probably see a (downward) correction in oil.”

In the last couple of months, oil has tended to move inversely to the dollar, as weakness in the currency makes it cheaper for non-U.S. investors in crude to buy and vice versa.

Despite generally bullish sentiment, analysts said the market had been dented by rising output in North America.

The ‘wobbly leg’ in oil markets  

U.S. crude production has grown by over 17 percent since mid-2016 to 9.88 million barrels per day (bpd) in mid-January. It is expected to break through 10 million bpd soon.

U.S. energy companies added 12 oil rigs drilling for new production last week, taking the total to 759, energy services firm Baker Hughes said on Friday.

U.S. production is already on par with top exporter and OPEC kingpin Saudi Arabia. Only Russia produces more, averaging 10.98 million bpd in 2017.

There are also signs that Canadian oil production, already at 335,000 bpd, could start to rise as investment in its shale sector picks up. Canada’s overall crude production currently stands at 4.2 million bpd.

U.S. bank JP Morgan said it had increased its 2018 average price forecast by $10 per barrel to $70 per barrel for Brent and by $10.70 per barrel for WTI to $65.63.

“We expect Brent to touch close to $78 per barrel towards end of Q1 2018 or early Q2 2018,” it added.

— CNBC’s Tom DiChristopher contributed to this report.

Oil price rally will not persuade OPEC to end production cuts, analyst says

CNBC

  • Crude futures have climbed to highs not seen since the early days of a slump in December 2014, prompting some analysts to suggest the recent price rally could hasten the process of OPEC devising an exit strategy
  • “We will see compliance drop in the second half of the year (so) they are going to want to really cement the gains they have made and the rebalancing they have achieved,” Richard Mallinson, geopolitical analyst at Energy Aspects, told CNBC on Friday
  • In recent weeks, big investment banks have raised their target price for oil as crude futures have risen to multi-year highs

Nervousness about what oil ministers say

Market views future of OPEC deal as a binary: Energy Aspects  

The recent uptick in oil prices is not likely to be enough to persuade OPEC to end production cuts this summer, Richard Mallinson, geopolitical analyst at Energy Aspects, told CNBC on Friday.

Crude futures have climbed to highs not seen since the early days of a slump in December 2014, prompting some analysts to suggest the recent price rally could hasten the process of OPEC devising an exit strategy. Brent crude futures hit a peak of $70.37 a barrel on Monday, with the global benchmark since paring some of its recent gains to trade at $68.90 on Friday afternoon.

However, when asked at what stage oil traders could expect OPEC to begin phasing out the current level of production cuts, Mallinson said the major oil producing group would need to wait until the middle of 2018 before it could “confidently” feel the market had leveled out.

Nonetheless, he did not expect the 14-member cartel to end its deal with 10 other allied producers in June.

“We will see compliance drop in the second half of the year (so) they are going to want to really cement the gains they have made and the rebalancing they have achieved,” he added.

Big banks raise oil price targets

In recent weeks, big investment banks have raised their target price for oil as crude futures have risen to multi-year highs.

Bank of America Merrill Lynch and Morgan Stanley both upped their forecasts for crude prices this week, while Goldman Sachs said the risks of prices overshooting its current targets are mounting.

Pumpjacks in an oil field.

Paul Giamou | Aurora | Getty Images
Pumpjacks in an oil field.

The main price driver has been a supply cut from OPEC and Russia, who started to withhold output in January last year. The OPEC-led production cuts, that are scheduled to last throughout 2018, are aimed at clearing a supply overhang and propping up prices.

OPEC is next scheduled to meet in Vienna, Austria, on June 22.

Mallinson said that while it was understandable for oil traders to be wary of the group’s summer meeting, he emphasized they would be mistaken in thinking the major oil producing group’s only options were to either stick with the current level of supply cuts or to allow flat-out global production.

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC’s reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil-producing nations — in late 2016.

— CNBC’s Tom DiChristoper contributed to this report.

Oil prices drop on increased U.S. drilling activity

Investing.com

Commodities3 hours ago (Dec 10, 2017 11:27PM ET)
© Reuters. FILE PHOTO - A drilling rig owned by Parsley Energy Inc. near Midland© Reuters. FILE PHOTO – A drilling rig owned by Parsley Energy Inc. near Midland

By Henning Gloystein

SINGAPORE (Reuters) – Oil prices fell on Monday as last week’s rise in the U.S. rig count pointed to a further increase in American production that could undermine OPEC-led efforts to tighten markets.

A statement by Kuwait’s oil minister that OPEC and other oil producers will study before June next year the possibility of exiting their global oil supply-cut agreement also weighed on prices, traders said.

U.S. West Texas Intermediate (WTI) crude futures (CLc1) were at $57.14 a barrel at 0418 GMT, down 22 cents, or 0.4 percent, from their last settlement.

Brent crude futures (LCOc1), the international benchmark for oil prices, were down 25 cents, or 0.4 percent, at $63.15 a barrel.

“The largest concern for investors currently remains the rise in the U.S. rig count, which could potentially jeopardize the OPEC and Russian agreement when they meet for a review in June 2018,” said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers.

The number of rigs drilling for new oil output in the United States rose by two in the week to Dec.8, to 751, the highest level since September, General Electric Co’s (N:GE) Baker Hughes energy services firm said on Friday.

A higher rig count points to a further rise in U.S. crude production , which is already up by more than 15 percent since mid-2016 to 9.71 million barrels per day (bpd).

That’s the highest level since the early 1970s, and close to levels from top producers Russia and Saudi Arabia.

Rising U.S. output threatens to undermine efforts led by the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC producers, including Russia, to support prices by withholding supplies.

OPEC and its allies started withholding supplies last January and currently plan to continue doing so throughout 2018.

Kuwait’s oil minister Essam al-Marzouq said on Sunday, however, OPEC and other oil producers will study before June possibly ending the global oil supply cuts earlier.

Crude Oil Prices

Weekly Outlook: December 4 – 8

 
© Reuters.  Oil prices rise toward 2½-year highs on OPEC cuts© Reuters. Oil prices rise toward 2½-year highs on OPEC cuts

Investing.com – Oil finished higher on Friday, with prices climbing back toward their best level since July 2015 after OPEC and other crude producers agreed to extend existing output cuts until the end of 2018 to tighten global supplies.

But prices came off session highs as financial markets reeled from an ABC News report that added to concerns about President Donald Trump’s exposure to a probe into Russian meddling in last year’s campaign.

Brent crude futures, the benchmark for oil prices outside the U.S., jumped $1.10, or roughly 1.8%, to settle at $63.73 a barrel by close of trade. It rose to a session peak of $64.32, putting the contract within striking distance of a two-and-a-half-year high of $64.65.

Meanwhile, U.S. West Texas Intermediate (WTI) crude futures tacked on 96 cents, or around 1.7%, to end at $58.36 a barrel. That was the highest settlement since last Friday, when prices reached their strongest level since the summer of 2015 at $59.05.

For the week, Brent marked a climb of about 0.4%, while WTI lost 1%. They respectively gained 3.5% and 5.5% in November.

The Organization of Petroleum Exporting Countries (OPEC), along with some non-OPEC producers led by Russia, agreed on Thursday to extend current oil output cuts for a further nine months until the end of next year, as expected.

They also signaled a possible early exit from the deal should the market overheat and prices rise too far.

The deal to cut oil output by 1.8 million barrels a day (bpd) was adopted last winter by OPEC, Russia and nine other global producers. The agreement was due to end in March 2018, having already been extended once.

The OPEC-led production cuts have been one of the key catalyst supporting the recent rally in oil prices amid expectations that rebalancing in crude markets are well underway.

However, fears that rising U.S. output would dampen OPEC’s efforts to rid the market of excess supplies are prevented prices from rising much further, according to market participants.

U.S. energy companies added two oil rigs in the week to Dec. 1, bringing the total count up to 749, the highest since September, General Electric (NYSE:GE)’s Baker Hughes energy services firm said in its closely followed report on Friday.

Domestic U.S. output has rebounded by almost 15% since the most recent low in mid-2016, and increasing drilling activity for new production means output is expected to grow further, as producers are attracted by climbing prices.

U.S. oil production hit a new record of 9.68 million bpd last week, according to government data released during the week, bringing U.S. output close to levels of top producers Russia and Saudi Arabia.

In other energy trading, gasoline futures inched up 1.1 cents, or 0.7%, to end at $1.741 a gallon on Friday. It closed around 2.6% lower for the week.

Heating oil advanced 4.3 cents, or 2.3%, to $1.941 a gallon, marking a 0.6% weekly loss.

Meanwhile, natural gas futures added 3.6 cents, or 1.2%, to settle at $3.061 per million British thermal units. For the week, futures gained 8.8%, as traders reacted to forecasts calling for more heating demand through mid-December.

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.

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

Tuesday

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

Wednesday

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

Thursday

The U.S. government will publish a weekly report on natural gas supplies in storage.

Friday

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

Crude Oil Prices – Weekly Outlook: Nov. 27 – Dec. 1

© Reuters.  Oil scores weekly gains ahead of OPEC meeting © Reuters. Oil scores weekly gains ahead of OPEC meeting
Investing.com – Crude oil prices finished higher in an abbreviated session on Friday, with the U.S. benchmark surging to its best level since July 2015, as the shutdown at North America’s Keystone pipeline continued to cut deliveries to storage facilities.

U.S. West Texas Intermediate (WTI) crude futures rose 93 cents, or around 1.6%, to end at $58.95 a barrel by close of trade, levels not seen since the summer of 2015.

Meanwhile, Brent crude futures, the benchmark for oil prices outside the U.S., tacked on 31 cents, or roughly 0.5%, to settle at $63.86 a barrel.

Trading in crude futures settled an hour earlier on Friday, at 1:30PM ET, following the observance of Thanksgiving in the U.S. on Thursday.

For the week, WTI gained about 4.2%, while Brent marked a climb of about 1.8%.

The disruption to the Keystone pipeline connecting Canada’s Alberta oil sands to U.S. refineries has reduced the usual 590,000 barrel-per-day flow to U.S. refineries, driving down inventories at the storage hub of Cushing, Oklahoma

Flow from the pipeline, which was shut on Nov. 16 following a 5,000-barrel spill in South Dakota, was expected to be reduced by 85% through the end of November, according to line operator TransCanada.

Crude prices were further supported by growing signals that the Organization of Petroleum Exporting Countries (OPEC) and its allies will agree to prolong supply curbs when producers meet in Vienna at the end of the month.

Russia said on Friday it is ready to support extending a deal among oil producers on cutting output, but made no mention of how long this should last beyond its March expiry.

Under the original terms of the deal, OPEC and 11 other non-OPEC producers, led by Russia, agreed to cut output by about 1.8 million barrels per day for the first six months of 2017. The agreement was then extended back in May of this year for a period of nine more months until March 2018.

The OPEC-led production cuts have been one of the key catalyst supporting the recent rally in oil prices amid expectations that rebalancing in crude markets are well underway.

In other energy trading, gasoline futures tacked on 2.0 cents, or 1.1%, to end at $1.788 on Friday. It closed around 2.5% higher for the week.

Heating oil advanced 2.0 cents, or 1.1%, to $1.952 a gallon, marking a 0.3% weekly gain and booking its seventh weekly climb in a row.

Meanwhile, natural gas futures plunged 15.5 cents, or 5.2%, to settle at $2.813 per million British thermal units. For the week, futures lost 9.2%, marking the largest weekly percentage drop since the period ended Feb. 3., amid forecasts for less heating demand through early December.

In the week ahead, market participants will focus on the Organization of Petroleum Exporting Countries highly-anticipated meeting on Thursday to see whether major producers plan to extend their current production-cut agreement.

Most market analysts expect the oil cartel to extend output cuts for a further nine months until the end of next year in a bid to reduce global oil inventories and support oil prices.

Energy traders will also 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.

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

Tuesday

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

Wednesday

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

Thursday

Major global oil producers are due to meet in Vienna in order to decide on extending their current output-cut deal.

The U.S. government will publish a weekly report on natural gas supplies in storage.

Friday

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