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.

Oil extends gains on robust OPEC compliance

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  • U.S. oil prices extended gains on Thursday.
  • OPEC’s strong compliance with a supply reduction pact offset news that U.S. production topped 10 million barrels per day for the first time in nearly half a century.

Oil fracking

David McNew | Getty Images

U.S. oil prices extended gains on Thursday as OPEC’s strong compliance with a supply reduction pact offset news that U.S. production topped 10 million barrels per day for the first time in nearly half a century.

NYMEX crude for March delivery rose 18 cents, or 0.3 percent, to $64.91 a barrel by 0030 GMT, after ending the last session up 0.4 percent.

London Brent crude for April delivery had yet to start trading,after settling on Wednesday up 3 cents at $68.89.

U.S. crude oil production in November surpassed 10 million barrels per day for the first time since 1970, and neared the all-time output record, the Energy Information Administration said on Wednesday.

Oil workers using chain to position drill on drilling platform.

Crude oil inventories up 6.8 million barrels  

Oil output by the Organization of the Petroleum Exporting Countries also rose in January from an eight-month low as higher output from Nigeria and Saudi Arabia offset a further decline in Venezuela and strong compliance with a supply reduction pact, a Reuters survey found.

However, adherence by producers included in the deal to curb supply rose to 138 percent from 137 percent in December, the poll found, suggesting commitment is not wavering even as oil prices hit their highest level since 2014.

U.S. crude inventories rose by 6.8 million barrels last week, after 10 straight weeks of declines, U.S. Energy Information Administration data showed on Wednesday. Analysts had expected a decrease of 126,000 barrels.

Gasoline stocks unexpectedly fell by 2 million barrels, compared with expectations in a Reuters poll for a gain of 1.8 million barrels, helping push up gasoline futures.

Distillate stockpiles, which include diesel and heating oil, fell by 1.9 million barrels, versus expectations for a 1.5 million-barrel drop, the EIA data showed.

Oil boosted by dollar weakness, but headwinds loom

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  • The U.S. dollar fell to 2014 lows this week.
  • A weaker dollar supported general fuel demand.
  • But demand outlook weakened ahead of refinery maintenance season.

An oil pump jack in the oil town of Gonzales, Texas.

Getty Images
An oil pump jack in the oil town of Gonzales, Texas.

The oil rally paused for breath on Friday after hitting fresh three-year highs in the previous session, but weakness in the dollar continued to underpin prices.

Brent crude futures stood at $70.49 per barrel at 1047 GMT, 7 cents above their last close. On Thursday, the contract climbed to as high as $71.28 per barrel, its highest since 2014.

U.S. West Texas Intermediate (WTI) crude futures were at $65.66 a barrel, up 15 cents from their previous close, recovering from a session-low of $64.91 a barrel. On Thursday, they also reached their highest since December 2014, at $66.66 per barrel.

Both contracts were set for weekly gains after support from a weakening dollar, which on Friday hit new three-year lows against a basket of other leading currencies.

“For as long as the U.S. dollar remains on the defensive, no more pronounced price fall on the oil market is likely to ensue,” Commerzbank analyst Carsten Fritsch said in a note.

As oil is traded in dollars, swings in the greenback can impact oil demand as they affect the price of fuel purchases for countries using other currencies. Still, crude prices were capped by seasonally weakening demand.

Georgi Slavov, head of research at commodities brokerage Marex Spectron, said despite a generally healthy outlook, there were short-term oil demand headwinds due to the coming end of winter in the northern hemisphere.

Low oil prices have generated high oil demand, says Total CEO  

Many refiners shut down after winter for maintenance, resulting in lower orders for crude, their most important feedstock.

“Demand is starting to weaken as … refining capacity was taken out of the market,” Slavov said.

This is reflecting in oil inventories. U.S. bank Morgan Stanley noted that global oil stocks built up overall in the week ending Jan. 19.

On the supply side, U.S. oil production is expected to hit 10 million bpd soon, putting it on a par with top exporter Saudi Arabia.

Output has grown by more than 17 percent since mid-2016. Only Russia produces more, averaging 10.98 million bpd in 2017.

Rising U.S. output threatens to undermine the supply restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, aimed at propping up prices.

The cuts, coupled with demand growth, have contributed to a near 60 percent rise in oil prices since mid-2017 as excess crude inventories have been drawn down.