Record U.S. crude production weighs on oil prices

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  • Oil prices dipped on Thursday as U.S. crude production quickly approached an unprecedented 12 million barrels per day (bpd) just as worries about weakening demand emerge.
  • U.S. West Texas Intermediate (WTI) crude futures were at $52 per barrel at 0140 GMT, down 31 cents, or 0.6 percent, from their last settlement.
  • International Brent crude oil futures were down 34 cents, or 0.6 percent, at $60.98 per barrel.

Men work for Iraqi Drilling Company at Rumaila oilfield in Basra, Iraq,

Essam Al-Sudani | Reuters
Men work for Iraqi Drilling Company at Rumaila oilfield in Basra, Iraq,

Oil prices dipped on Thursday as U.S. crude production quickly approached an unprecedented 12 million barrels per day (bpd) just as worries about weakening demand emerge.

U.S. West Texas Intermediate (WTI) crude futures were at $52 per barrel at 0140 GMT, down 31 cents, or 0.6 percent, from their last settlement.

International Brent crude oil futures were down 34 cents, or 0.6 percent, at $60.98 per barrel.

American crude oil production reached a record 11.9 million bpd in the week ending Jan. 11, the Energy Information Administration (EIA) said on Wednesday, up from 11.7 million bpd last week, which was already the highest national output in the world.

U.S. output has soared by 2.4 million bpd since January 2018, stoking fears of a supply glut.

The EIA also said gasoline stockpiles climbed 7.5 million barrels last week, far exceeding analyst expectations in a Reuters poll for a 2.8 million-barrel gain. At 255.6 million barrels, gasoline stocks were at their highest weekly level since February, 2017.

“While (U.S. crude) inventories fell slightly more than expected, there was a large build in gasoline inventories. This stoked fears of weak demand in the U.S.,” ANZ Bank said in a note.

Distillate stockpiles, which include diesel and heating oil, rose by 3.0 million barrels, versus expectations for a 1.6 million-barrel increase, the EIA data showed.

U.S. exports surge, OPEC cuts

Along with the surge in U.S. crude output, exports from the United States are also rising, hitting a record 3.2 million bpd by the end of last year.

“Crude oil exports from the U.S. have strongly increased during the last few years and the trend is expected to remain positive,” shipping brokerage Banchero Costa said in a note.

Norbert Ruecker, head of commodity research at Swiss Julius Baer, said “the United States is moving forward towards energy independence and is set to become a petroleum net exporter next year thanks to rising shale output”.

Soaring U.S. supply comes amid concerns over stuttering demand-growth due to a global economic slowdown, which some analysts believe will turn into a recession.

To stem a lurking petroleum glut, the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producer Russia are leading efforts to cut supply.

This has prevented crude prices from falling much lower despite softening demand and the surge in U.S. output.

Brent crude edges up, but concern over demand limits gains

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  • Brent fell 11 percent last week and hit its lowest since September 2017, while U.S. futures slid to their lowest since July 2017, bringing the decline in the two contracts to 35 percent so far this quarter.
  • The price drop has caused U.S. shale oil producers to curtail drilling plans for next year.

Oil tanker

Jean-Paul Pelissier | Reuters

Oil prices edged up on Monday after evidence that a recent fall to 15-month lows may be affecting output in the United States, the world’s largest producer, although concern about the outlook for demand tempered gains.

Brent crude futures were up 12 cents at $53.94 a barrel by 0858 GMT, while U.S. crude futures lost 3 cents to $45.56.

Brent fell 11 percent last week and hit its lowest since September 2017, while U.S. futures slid to their lowest since July 2017, bringing the decline in the two contracts to 35 percent so far this quarter.

The price drop has caused U.S. shale oil producers to curtail drilling plans for next year.

The boom in shale output has made the United States the world’s largest oil producer, overtaking Saudi Arabia and Russia.

Physical prices for Brent have also fallen in the last six weeks, driven by a drop in demand from Chinese refiners in particular, which has weighed on the value of barrels of anything from North Sea to Nigerian crude.

“The recent weakness in the physical Brent structure can be attributed to a broader easing of purchases by Asian refiners at this point, with lower end-Q1 intake weighing on spot assessments, and we can expect this pressure to carry through over the coming weeks,” consultancy JBC Energy said in a report.

Still, the macroeconomic picture and its impact on oil demand continue to pressure prices. Global equities have fallen nearly 9.5 percent so far in December, their biggest one-month slide since September 2011, when the euro zone debt crisis was unfolding.

The trade dispute between the United States and China and the prospect of a rapid rise in U.S. interest rates have brought global stocks down from this year’s record highs and ignited concern that oil demand will be insufficient to soak up any excess supply.

The Organization of the Petroleum Exporting Countries and allies led by Russia agreed this month to cut oil production by 1.2 million barrels per day from January.

Should that fail to balance the market, OPEC and its allies will hold an extraordinary meeting, United Arab Emirates Energy Minister Suhail al-Mazrouei said on Sunday.

“Oil ministers are already taking to the airwaves with a ‘price stability at all cost’ mantra,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

Oil prices resume drop, shed most of last session’s gains

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  • Concerns over oversupply and the outlook for demand continue to weigh on oil prices.
  • U.S. crude inventories fell by 497,000 barrels in the week to Dec. 14, according to the U.S. Energy Information Administration, smaller than the decrease of 2.4 million barrels analysts had expected.
  • The decline in U.S. crude inventories was the third consecutive decrease.

Oil prices fell on Thursday to erase most of their gains from the day before, resuming declines seen earlier in the week amid worries about oversupply and the outlook for the global economy.

The front-month U.S. crude contract had dropped more than $1, or 2.24 percent, to $47.10 per barrel by 0423 GMT, offseting gains of 96 cents chalked up on Wednesday.

International benchmark Brent crude futures were down over $1, or 1.82 percent, at $56.20 per barrel, after climbing almost 2 percent the session before.

“Wednesday’s recovery was short-covering. Investors quickly moved their attention to deteriorating fundamentals in the oil markets including more signs of slowing economic growth next year, record production and the lack of confidence with OPEC’s pledge to curb production,” said Xi Jiarui, chief oil analyst at consultancy JLC.

The Organization of the Petroleum Exporting Countries and other oil producers including Russia agreed this month to curb output by 1.2 million barrels per day (bpd) in an attempt to drain tanks and boost prices.

Oil prices are down more than 30 percent from peaks seen in October.

But the cuts will not happen until next month and production has been at or near record highs in the United States, Russia and Saudi Arabia.

Saudi Arabia’s energy minister, Khalid al-Falih, said he expected global oil stocks to fall by the end of the first quarter, but added that the market remained vulnerable to political and economic factors as well as speculation.

Technical analysis showed U.S. oil may retest support at $45.94 per barrel, a break below which could cause a loss to $44.43, Reuters market analyst Wang Tao wrote on Thursday.

Squaring up

Volatility in crude prices this week has driven investors to shut their positions and is draining liquidity from the market, Xi said.

Total market open interest in U.S. crude contracts had fallen to 2.063 million contracts as of Thursday, up from a record of 2.71 million in May.

“It has been a tumultuous week in oil markets and traders may opt to shut it down after the last big risk event of the year with year-end position-squaring likely to kick-in today,” said Stephen Innes, head of trading for Asia-Pacific at OANDA.

Innes was referring to the U.S. Federal Reserve’s last policy meeting of 2018, at which it suggested the U.S. economy no longer needed the central bank’s support either through lower-than-normal interest rates or by maintaining a massive balance sheet.

But U.S. inventory data offered some support to WTI prices.

U.S. crude inventories fell by 497,000 barrels in the week to Dec. 14, the U.S. Energy Information Administration said on Wednesday, smaller than the decrease of 2.4 million barrels analysts had expected. The decline was the third consecutive decrease.

Distillate stockpiles, which include diesel and heating oil, fell by 4.2 million barrels, versus expectations of a 573,000-barrel increase, the EIA said.

Distillate demand rose to the highest since January 2003, which bolstered buying, particularly in heating oil futures, the market’s proxy for diesel.

Oil prices fall for third straight session amid supply glut worries

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  • Both Brent and U.S. crude futures slipped more than 1 percent.
  • Both U.S. crude and Brent have shed more than 30 percent from early October amid swelling global inventories, with WTI currently trading at levels not seen since October 2017.

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Oil prices dropped over 1 percent on Tuesday, falling for a third straight session, as reports of inventory builds and forecasts of record shale output in the United States, currently the world’s biggest producer, stoked worries about oversupply.

Concerns around future oil demand amid weakening global economic growth and doubts over the impact of planned production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) were also pressuring prices, traders said.

International benchmark Brent crude oil futures were at $58.90 per barrel at 0340 GMT, down 71 cents, or 1.2 percent, from their last close. Brent has fallen more than 4 percent in the past three sessions so far.

U.S. West Texas Intermediate (WTI) crude futures were down 60 cents, or 1.2 percent, at $49.27 per barrel.

Both U.S. crude and Brent have shed more than 30 percent from early October amid swelling global inventories, with WTI currently trading at levels not seen since October 2017.

“OPEC is reducing production to attempt to rebalance. However, data from Cushing still shows an oversupply,” said Hue Frame, portfolio manager at Frame Funds.

“This isn’t being viewed favourably by the market, especially in combination with slow global growth.”

Inventories at the U.S. storage hub of Cushing, Oklahoma, which is the delivery point for the WTI futures contract, rose by more than 1 million barrels from Dec. 11 to 14, traders said, citing data from market intelligence firm Genscape on Monday.

Meanwhile, oil production from seven major U.S. shale basins is expected to climb to 8.03 million barrels per day (bpd) by the end of the year for the first time, the U.S. Energy Information Administration said on Monday.

“Rising U.S. shale production levels along with a deceleration in global economic growth has threatened to offset OPEC+ efforts as markets weigh the potential of looser fundamentals,” said Benjamin Lu Jiaxuan, an analyst at Singapore-based brokerage firm Phillip Futures.

With oil prices now falling, unprofitable shale producers will eventually stop operating and cut supply, but that will take some time, analysts said.

Supply curbs agreed by OPEC and its Russia-led allies might not bring about the desired results as U.S. output goes on increasing and as Iran keeps pumping out more oil, analysts said.

The cuts are also coming from currently high production. Oil output from Russia has been at a record-high of 11.42 million barrels per day (bpd) so far in December.

“The strength of OPEC+ cuts will be weighed against Iranian production levels in lieu of U.S. waivers till Q2 2019,” analyst Lu Jiaxuan said.

“Market confidence remains extremely delicate amidst looming economic uncertainties as investors contemplate on weaker fuel demand beyond 2018.”

China’s industrial output in November rose the least in nearly three years as the world’s second-largest economy lost further momentum.

Oil strengthens ahead of G20 meeting, but supply rise caps gains

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  • Oil prices ticked higher on Thursday on optimism that trade talks at the G20 meeting could aid the global economy and improve the demand outlook, while an increase in U.S. crude inventories to their highest in a year curbed gains.
  • U.S. crude futures rose 38 cents, or 0.8 percent, to $50.67 per barrel by 0338 GMT. The market ended the previous session down 2.5 percent at $50.29 a barrel, after hitting the lowest since early October last year.
  • International benchmark Brent crude rose 27 cents, or 0.5 percent, to $59.03 a barrel, having dropped 2.4 percent on Wednesday to $58.76 a barrel.

Oil prices ticked higher on Thursday on optimism that trade talks at the G20 meeting could aid the global economy and improve the demand outlook, while an increase in U.S. crude inventories to their highest in a year curbed gains.

U.S. crude futures rose 38 cents, or 0.8 percent, to $50.67 per barrel by 0338 GMT. The market ended the previous session down 2.5 percent at $50.29 a barrel, after hitting the lowest since early October last year.

International benchmark Brent crude rose 27 cents, or 0.5 percent, to $59.03 a barrel, having dropped 2.4 percent on Wednesday to $58.76 a barrel.

Both markets rose more than 1 percent in early Asian trade.

“We have seen huge increases in supply and the demand picture is in question. However, we might see some movement on global trade issues at the G20 meeting which starts on Friday,” said Michael McCarthy, chief strategist at CMC Markets and Stockbroking.

“I think we are seeing some positioning ahead of those potential demand-positive events.”

Investors in commodity markets are looking ahead to the meeting of leaders of the Group of 20 nations (G20), the world’s biggest economies, on Nov. 30 and Dec. 1, with the U.S.-China trade war at the top of the agenda.

U.S. President Donald Trump is open to a trade deal with China but is also prepared to hike tariffs on imports from the country if there is no breakthrough on longstanding trade issues during a dinner on Saturday with Chinese leader Xi Jinping, White House economic adviser Larry Kudlow said on Tuesday.

Xi said China will widen market access for foreign investors and step up protection of intellectual property rights.

Meanwhile, rising supplies are keeping a lid on prices.

U.S. crude inventories for the week to Nov. 23 added 3.6 million barrels to the most in a year at 450 million barrels, exceeding expectations, the Energy Information Administration said on Wednesday.

“WTI oil is now trading right around the $50 per barrel level, a price last seen well over a year ago, as the current oversupply situation has now manifested itself in 10 consecutive weekly increases in U.S. oil inventories,” said William O’Loughlin, Investment Analyst at Australia’s Rivkin Securities.

The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members will meet in Vienna, Austria on Dec. 6 to discuss a new round of production cuts of 1 million to 1.4 million barrels per day (bpd) and possibly more, OPEC delegates told Reuters earlier this month.