Oil extends gains on IEA growth forecasts, hopes for OPEC-US shale producer talks

CNBC

  • Oil prices extended gains on Tuesday for the fifth straight day.
  • The IEA said on Monday global oil demand was expected to grow in the next five years, while output from OPEC producers would rise at a much slower pace.
  • OPEC oil ministers, U.S. shale oil producers and other global oil industry leaders gathered in Houston as CERAWeek kicked off on Monday.

Oil fracking California

Getty Images

Oil prices extended gains on Tuesday for the fifth straight day, underpinned by robust demand forecasts and prospects for informal contacts sought by OPEC with U.S. shale oil producers at a key industry meeting in Houston this week.

International benchmark Brent crude futures climbed to $65.73 per barrel at 0138 GMT, up 19 cents, or 0.29 percent.

U.S. West Texas Intermediate (WTI) crude futures advanced to $62.74 a barrel, up 17 cents, or 0.27 percent.

The International Energy Agency (IEA) said on Monday global oil demand was expected to grow in the next five years, while output from producers in the Organization of the Petroleum Exporting Countries (OPEC) would rise at a much slower pace.

The IEA said the United States would supply much of the world’s growing oil demand over the same period as its shale oil production was set to surge. U.S. crude production has risen to more than 10 million barrels per day (bpd), overtaking top exporter Saudi Arabia. Output hit a record 10.057 million bpd in November, according to the U.S. Energy Department.

Meanwhile, OPEC oil ministers, U.S. shale oil producers and other global oil industry leaders gathered in Houston as CERAWeek, the largest energy industry get-together, kicked off on Monday.

The gathering comes against the backdrop of an extension in output cuts led by OPEC, along with other oil producers including Russia, in a bid to absorb a global oil glut and boost prices.

Higher U.S. oil production has hampered OPEC’s drive to reduce global supply, however.

Elsewhere, Libya’s El Sharara oil field resumed operations on Monday. The field, operated by Libya’s National Oil Corporation (NOC), was shut down on Sunday after a landowner closed a valve on a pipeline crossing his land.

‘Relentless’ growth could see the US topple Russia, Saudi Arabia as world’s largest oil producer, IEA says

CNBC

  • “This year promises to be a record-setting one for the U.S.,” the IEA said in its closely-watched report published Friday
  • The latest monthly report from the IEA comes at a time when crude futures have climbed to highs not seen since the early days of a slump in December 2014
  • One of the main beneficiaries of OPEC-led production cuts is the producers’ major competitor, U.S. shale oil. U.S. oil producers are staging a dramatic comeback amid a recovering oil price that has allowed many of them to restart operations.

IEA’s Atkinson: Low Venezuelan oil production hastens market rebalancing

IEA: Expect a volatile year for oil prices  

The U.S. is well-placed to overtake the likes of Saudi Arabia and Russiaas the world’s leading energy producer over the next 12 months, according to the latest monthly report from the International Energy Agency (IEA).

“This year promises to be a record-setting one for the U.S.,” the IEA said in its closely-watched report published Friday.

“Relentless growth should see the U.S. hit historic highs above 10 million barrels a day (in production), overtaking Saudi Arabia and rivaling Russia during the course of 2018 — provided OPEC and non-OPEC restraints remain in place,” the Paris-based organization added.

‘Unchartered waters’

The latest monthly report from the IEA comes at a time when crude futures have climbed to highs not seen since the early days of a slump in December 2014. 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 $68.69 on Friday morning.

“What we are trying to understand is the responsiveness of the U.S. shale producers. And because of the dynamism of the industry, the innovation and the vast number of players in that space … to some extent, we are in unchartered waters,” Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC on Friday.

Atkinson said that given the recent rally in oil prices, the IEA was expecting a “wave of new production” from the U.S. in the coming months. He added OPEC would then need to “accommodate” for that and make its own judgment at its next meeting in June as to what its response should be.

IEA predicts a slowdown in crude demand growth in 2018

IEA’s Atkinson: Low Venezuelan oil production hastens market rebalancing  

The main price driver has been a supply cut from major oil producing group OPEC and Russia, who started to withhold output in January last year. The production cuts by OPEC and 10 other allied producers, which are scheduled to last throughout 2018, are aimed at clearing a supply overhang and propping up prices.

One of the main beneficiaries of these cuts is the producers’ major competitor, U.S. shale oil. U.S. oil producers are staging a dramatic comeback amid a recovering oil price that has allowed many of them to restart operations.

US ‘beat all expectations’ in 2017

U.S. crude production stands at 9.9 million barrels a day, according to the IEA, which is the country’s highest level in almost 50 years. That level of supply puts the U.S. neck-and-neck with OPEC kingpin Saudi Arabia — the world’s second-largest producer after Russia.

“The stage was set for a strong expansion last year, when non-OPEC supply, led by the U.S., returned to growth of 0.7 million barrels a day and pushed up world production despite OPEC and non-OPEC cuts,” the IEA said.

“U.S. growth of 0.6 million barrels a day in 2017 beat all expectations, even with a moderate price response to the output deal as the shale industry bounced back — profiting from cost cuts, stepped up drilling activity and efficiency measures enforced during the downturn,” the group said.

A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.

Brittany Sowacke | Bloomberg | Getty Images
A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.

In recent years, America’s unprecedented oil and gas boom has been driven by one factor above all others — and that’s shale. The so-called shale revolution could help to alleviate Washington’s reliance on foreign oil, including from turbulent Middle Eastern states, while also supporting a bid to export to more countries around the world.

The IEA’s estimates of global oil product demand in 2017 and 2018 were left roughly unchanged at 97.8 million barrels a day and 99.1 million barrels a day, respectively.

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.

Oil prices fell more than 1 percent on Wednesday

Oil prices slide after IEA casts doubt over demand outlook

CNBC

  • Oil prices fell more than 1 percent on Wednesday, continuing Tuesday’s slide
  • Crude prices are now down by around 5 percent since hitting 2015 highs last week
  • The International Energy Agency (IEA) on Tuesday cut its oil demand growth forecast by 100,000 barrels per day (bpd) for this year and next

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices fell more than 1 percent on Wednesday, continuing Tuesday’s slide after the International Energy Agency cast doubts over the past few months’ narrative of tightening fuel markets.

Brent crude futures were at $61.33 per barrel at 0515 GMT, down 88 cents, or 1.4 percent from their last close.

U.S. West Texas Intermediate (WTI) crude was at $55 per barrel, down 70 cents, or 1.3 percent.

The price falls mean that crude prices are now down by around 5 percent since hitting 2015 highs last week, ending a 40-percent rally between June and early November.

“Crude prices dropped dramatically after the IEA forecast a gloomy outlook for the near future … The drop was arguably exacerbated by a global selloff in other commodities,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

The International Energy Agency (IEA) on Tuesday cut its oil demand growth forecast by 100,000 barrels per day (bpd) for this year and next, to an estimated 1.5 million bpd in 2017 and 1.3 million bpd in 2018.

“The oil market faces a difficult challenge in 1Q18 with supply expected to exceed demand by 600,000 bpd followed by another, smaller, surplus of 200,000 bpd in 2Q18,” the agency said.

The demand slowdown could mean world oil consumption may not, as many expect, breach 100 million bpd next year, while supplies are likely to exceed that level.

The IEA report countered the Organization of the Petroleum Exporting Countries, which just a day earlier said 2018 would see a strong rise in oil demand.

Vijayakar said a reported increase in U.S. crude inventories was also weighing on prices.

Crude oil tracks for worst day in a month

Crude oil tracks for worst day in a month  

The American Petroleum Institute (API) said on Tuesday that U.S. crude inventories rose by 6.5 million barrels in the week to Nov. 10 to 461.8 million.

U.S. government inventory data is due later on Wednesday.

On the supply side, rising U.S. output also pressured prices.

U.S. oil production has already increased by more than 14 percent since mid-2016 to 9.62 million bpd and is expected to grow further.

The IEA said non-OPEC production will add 1.4 million bpd of additional production in 2018.

The IEA’s outlook pressures OPEC to keep restraining output in order to defend crude prices, which its members rely on for revenue.

OPEC and some non-OPEC producers including Russia have been withholding production this year to end years of oversupply.

The deal expires in March 2018 but OPEC will meet on Nov. 30 to discuss policy, and it is expected to agree an extension of the cuts.

“Anything less than a full nine-month extension delivered at the Nov. 30 meeting could precipitate a sell-off,” U.S. bank Citi said.

China crude oil storage splurge is OPEC’s best friend

Nasdaq

Reuters

By Clyde Russell

(The opinions expressed here are those of the author, a columnist for Reuters.)

LAUNCESTON, Australia, Oct 16 (Reuters) – China’s crude oil imports surged to the second-highest on record in September, but this isn’t a sign of supercharged demand in the world’s second-biggest economy.

China’s crude imports jumped to 37 million tonnes in September, equivalent to 9 million barrels per day (bpd), according to preliminary customs data released on Oct. 13.

This was up from August’s 8 million bpd, but it’s worth noting that August was an eight-month low. More importantly, China’s oil imports are up 12.2 percent in the first nine months of 2017 from the same period last year.

This certainly looks like solid growth in the world’s biggest crude importer, and indeed, demand for refined fuels had been higher than expected at the start of the year, mainly on the back of strength in infrastructure and construction.

But it also appears that China is buying substantial amounts of crude for its strategic and commercial storages.

The September figure was likely boosted by the start-up of China National Offshore Oil Corp’s new Huizhou refinery, with plants typically requiring around 21 days of commercial reserves to ensure smooth operations.

The return from maintenance of some of the independent refineries also likely boosted crude imports in September.

But it also appears that China’s ongoing build-up of its strategic storage contributed to import demand.

China rarely releases data on its Strategic Petroleum Reserve (SPR), but Thomson Reuters Oil Research and Forecasts estimated that at least 1.15 million tonnes, or about 280,000 bpd, flowed into the SPR in September.

The International Energy Agency said on Oct. 12 that China has been building its crude stockpiles at a record pace in 2017, contributing to the country’s expected demand growth of 540,000 bpd in 2017 from 2016.

The IEA does expect China’s crude oil demand growth to slow to 325,000 bpd in 2018 as the country closes in on filling its available storage tanks.

While China’s buying of crude for its SPR isn’t a new dynamic, in the global oil market it effectively represents a shift of where oil is being stored.

STORED OIL FLOWS TO CHINA

As the global benchmark Brent crude moves into backwardation, where prices for oil for future delivery become cheaper than cargoes for immediate shipping, it becomes unprofitable for producers and traders to store crude.

This has resulted in stored oil being released onto the market, and China has shown it’s a willing buyer.

In particular it appears that crude in floating storage in the Asian region has been moved to China.

While it may seem of limited consequence for oil simply to move from one place to another, it does matter for market dynamics.

Oil in China’s SPR is effectively off the market, insofar as it’s unlikely to be used or be available for sale, unless there is a crisis of some description.

However, oil stored in anchored tankers or in land-based facilities can be traded and shipped. In other words, it is dynamic and part of the global physical oil market.

It’s these inventories that the Organization of the Petroleum Exporting Countries (OPEC) and its allies have been targeting in their efforts to re-balance the global market and boost the price of crude.

The overhang of crude acted as a drag on the price, and as oil moves out of storage it tightens the market, allowing OPEC and other producers to raise prices.

In some ways China’s demand for oil for its SPR has been OPEC’s biggest ally, but it should also be noted that China most likely has boosted oil imports precisely because the price has been relatively cheap.

Whether China would ease purchases for its SPR if crude prices rose strongly remains to be seen, but it certainly would be a possibility.

With Brent remaining below $60 a barrel despite the output curbs by OPEC and its allies, it’s also likely that China will continue to fill its SPR.

This means the country’s crude imports will likely remain robust in coming months, even if they slip back somewhat from September’s elevated levels.

However lower quotas for the export of refined products may also hamper China’s demand for imported crude in the fourth quarter, with refiners getting close to having used up their allocations for the year.

As usual there are competing dynamics at work in China’s crude oil markets, but it is likely that good consumption growth in the domestic market and strong flows into storages will offset any loss of demand from slowing refined product exports.

Oil slips despite larger draw in U.S. stocks

REUTERS

NEW YORK (Reuters) – Oil prices rebounded from earlier losses, but ended lower on the day, after the Energy Department reported a larger-than-expected decline in U.S. inventories and a falloff in weekly production on Thursday.

 A pump jack is seen at sunrise near Bakersfield, California October 14, 2014. REUTERS/Lucy Nicholson/File Photo

The market was pressured by a bearish outlook by the International Energy Agency, which lowered its forecast for oil demand for 2018.

Oil has strengthened in recent weeks, but it is unclear whether U.S. crude prices will regain the high of nearly $53 a barrel reached in late September. A surprise build in gasoline inventories fed concern that crude stocks may begin to rise again, sapping some strength from the recent rally.

Brent crude oil LCOc1 settled down 69 cents, or 1.2 percent, to $56.25 a barrel while U.S. light crude CLc1 ended down 70 cents, or 1.4 percent, to $50.60 a barrel. Both benchmarks have risen more than 20 percent from their lows in June as world oil markets tightened.

Crude inventories USOILC=ECI fell by 2.7 million barrels in the week to Oct. 6, compared with analysts’ expectations for a decrease of 2 million barrels. Distillate stocks fell by 1.5 million barrels, but gasoline inventories surprisingly rose by 2.5 million barrels. [EIA/S]

“With the U.S. already out of the summer driving season, there will be less demand for gasoline over the coming weeks – this could result in weeks of crude builds as oil production in the U.S. remains high,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.

The IEA said demand for OPEC oil would be 32.5 million barrels per day next year – around 150,000 bpd lower than the group pumped last month. [IEA/M]

Gary Ross, founder of PIRA Energy and head of Global Oil Analytics for S&P Global Platts, said the global crude surplus has now largely been absorbed – and there was risk that OPEC could overshoot on its cuts.

“We think (Brent) should make a new high before the end of the year,” Ross said, speaking to reporters as the annual PIRA client seminar in New York. He said he expects crude to stay between $50 and $60 a barrel through the end of the year.

U.S. crude inventories are still 13 percent above five-year averages headed into the busy winter season, despite efforts by OPEC to cut production.

The OPEC-led deal helped lift oil from below $30 a barrel early last year. But traders say supplies remain ample and OPEC is widely expected to extend its cuts beyond the current expiry date of end-March 2018

“There is little doubt that leading producers have re-committed to do whatever it takes to underpin the market,” the IEA said.

High U.S. production is pushing increasing volumes of U.S. crude into world markets, feeding inventories and undermining OPEC’s efforts to tighten the market C-OUT-T-EIA. U.S. exports fell in the most recent week to 1.27 million bpd, but U.S. exports have still exceeded 1 million barrels a day for three straight weeks, the first time this has happened.

Traders have expressed concerns that the United States will at some point reach its export capacity, though that has not been hit yet.

Addititional reporting by Christopher Johnson in London, Henning Gloystein in Singapore and Scott DiSavino in New York