Oil prices fall on relentless rise in US crude output

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  • U.S. crude oil production soared past 10 million barrels per day (bpd) in late 2017, overtaking output by top exporter Saudi Arabia.
  • U.S. production is expected to rise above 11 million bpd by late 2018, taking the top spot from Russia, according to the International Energy Agency.

Rig supervisor David Crow shows off the oil rig he manages for Elevation Resources at the Permian Basin drilling site in Andrews County, Texas, May 16, 2016.

Ann Saphir | Reuters

Oil prices fell on Tuesday, extending losses from the previous session, as the inexorable rise in U.S. crude output weighed on markets.

U.S. West Texas Intermediate (WTI) crude futures were at $61.25 a barrel at 0414 GMT, down 11 cents, or 0.2 percent, from their previous close.

Brent crude futures were at $64.85 per barrel, down 10 cents, or 0.2 percent.

Both crude benchmarks dropped by around 1 percent in their Monday sessions.

“Oil prices fell on the back of concerns that surging U.S. production … could push inventories in the U.S. higher,” ANZ bank said on Tuesday.

U.S. crude oil production soared past 10 million barrels per day (bpd) in late 2017, overtaking output by top exporter Saudi Arabia.

U.S. production is expected to rise above 11 million bpd by late 2018, taking the top spot from Russia, according to the International Energy Agency (IEA).

The rising U.S. output comes largely on the back of onshore shale oil production.

U.S. crude production from major shale formations is expected to rise by 131,000 bpd in April from the previous month to a record 6.95 million bpd, the U.S. Energy Information Administration (EIA) said in a monthly report on Monday.

“Oil prices moved lower … after (the) Energy Information Administration published a report that crude production from seven major U.S. shale plays is expected to see a climb,” said Stephen Innes, head of trading for Asia Pacific at futures brokerage OANDA in Singapore.

That expected increase would top the 105,000 bpd climb in March from the previous month, to what was then expected to be a record high of 6.82 million bpd, the EIA said.

The EIA is due to publish its latest weekly U.S. production data on Wednesday.

COLUMN-U.S. crude oil exports to Asia soar, complicating OPEC’s efforts: Russell

November 13, 2017 / 4:17 AM / Google Alerts

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

By Clyde Russell

LAUNCESTON, Australia, Nov 13 (Reuters) – U.S. crude oil is flooding into Asia, and may continue to do so as the arbitrage window that was initially created by Hurricane Harvey remains open, even though the disruption from the costliest storm to hit the Gulf of Mexico has faded.A record amount of U.S. crude is scheduled to arrive in Asia in November, according to vessel-tracking and port data compiled by Thomson Reuters Oil Research and Forecasts.

The data show 19.7 million barrels of U.S. oil is due to arrive across Asia in November, equivalent to about 657,000 barrels per day (bpd). The data are filtered to show only vessels that are currently underway, and those that are discharging or have discharged their cargoes.

This is more than a 50 percent jump on the 427,000 bpd that was offloaded in Asia in October, and also above the previous record-high month for U.S. crude shipments to Asia of 541,000 bpd from June.

It also appears that December will be another month of strength, with 11 vessels carrying a combined 16.5 million barrels of crude already en route from U.S. Gulf ports to Asia.

When Hurricane Harvey struck the U.S. Gulf coast in late August one of the initial impacts was a drop in the price of West Texas Intermediate (WTI), the main U.S. light crude grade.

At that time it became likely that U.S. exports to Asia would ramp up given that WTI’s discount to the global benchmark light crude, Brent, widened to $5.46 a barrel at closing prices on Aug. 29.

This was enough of a gap to overcome the higher freight rate to ship from the Gulf coast to Asia, compared to similar grades of crude from African producers such as Angola and Nigeria.

WTI’s discount to Brent had been just $2.48 a barrel at the end of July, which made it harder to make a profit shipping U.S. crude to Asia.

But instead of narrowing back as refineries recovered along the U.S. Gulf coast after Harvey and started processing crude again, WTI’s discount to Brent has remained at elevated levels.

At the close of Nov. 10, Brent commanded a $6.78 premium over WTI, which is even higher than what it was in the immediate aftermath of Harvey.

This makes it likely that U.S. crude will continue to flow to Asia at robust levels, as the discount provides a profitable trade for U.S. shale drillers and other oil producers.

CHANGING MARKET DYNAMICS

While the volumes aren’t enough to threaten the position of Asia’s major suppliers, such as OPEC heavyweights Saudi Arabia, Iran and Iraq, as well as Russia, it is enough to complicate the efforts of OPEC and its allies to re-balance crude oil markets and send prices sustainably higher.

For example, China, the world’s top crude importer, has been ramping up purchases from the United States, taking the equivalent of about 127,000 bpd of U.S. crude in the first nine months of the year.

While this makes the United States only China’s 15th biggest supplier, it represents a staggering 880 percent increase on the same period in 2016.

Other non-traditional suppliers to China have also been making inroads as OPEC and its allies acted to curb output.

Imports from Malaysia are up 500 percent, those from Britain by 95 percent and from the Republic of Congo by 459 percent.

In contrast, former top supplier Saudi Arabia has seen a drop of 0.6 percent in the first nine months of the year compared to the same period in 2016.

China’s imports from Iran are up by a modest 4.2 percent, while those from Iraq are 5.8 percent higher, both figures well below the overall increase of 12.2 percent in crude imports in the first three quarters of the year.

What the Chinese customs and the vessel-tracking data show is that the ongoing discount of WTI to Brent, coupled with the output restrictions by OPEC and its allies, are creating new market dynamics in Asia.

The problem for OPEC and other major crude suppliers to the world’s top importing region is that once market share is surrendered, it may prove difficult to win back.

Editing by Joseph Radford