By Tarun Satsangi
WTI crude oil prices turned sideways on a mixed bag of data, hovering in $55.8-$59.5 range, while ongoing Forties pipeline shutdown supported brent oil prices.
Record high US production is the biggest dampening factor for WTI and the oil market, jeopardising Opec’s rebalancing efforts.
IEA’s monthly OMR was bearish for a short-term, as they see rising US supplies likely moving oil market into a supply surplus in H1 2018 by 200,000 barrels per day (bpd) before reverting to a deficit of about 200,000 bpd in H2 2018, making 2018 a closely balanced market, and likelihood of better price performance in letter half of next year.
The IEA further raised US crude oil growth to 390,000 bpd this year and 870,000 bpd for 2018. Non-Opec output, led by the US, will rise by 630,000 bpd in 2017, followed by an increase of 1.6 million bpd during 2018.
Opec in its monthly report published on Wednesday also came up with a similar view, forecasting Non-Opec production to rise faster than expected by 120,000 bpd to 990,000 bpd in 2018.
Opec compliance with its production cuts rose to 121 per cent in November against 101 per cent reported in October.
Spread between brent and WTI increased to over $6 from a week-ago level of $4 after news broke that the North Sea’s forties pipeline, which is Britain’s largest having capacity of 450,000 bpd would have to be shut down for a couple of weeks due to hairline crack in it. Certainly it will benefit brent oil prices during the tenure of supply halt, but once pipeline resumes operation, prices will poise for a steeper correction.
Further extension of 1.8 mbpd output cut to the end of 2018 by the Opec in its November 30th Vienna meeting was well priced in. Focus soon after turned towards record US production that surged more than 16 per cent during the period of Opec-led output cut, jeopardising cartel’s efforts to re-balance the oil market.
Chinese demand resurged as official data showed the country’s crude oil November import rose to second highest on record, 37.04 million tonnes, or 9.01 mbpd, up from 7.3 mbpd in October. On a year-to-date basis crude imports rose 12 per cent to 385.98 million tonnes or 8.44 million bpd.
Moreover, China’s crude oil imports from the US hit an all-time high at 289,000 bpd in November, lured by the WTI crude oil’s significant discount compared to international brent oil. This spread also helped drive total US crude oil exports to a record high above 2 mbpd in October.
As per Baker Hughes report, oil rig counts in the US fell by 4 units to 747 in the week ended December 15. Still slightly below from the highest level since September. The US rig count, an early indicator of future output, gained sharply from 473 rigs active a year ago after energy companies boosted spending plans for 2017 in order to reap the benefit of rising prices of oil.
(Tarun Satsangi is Head of Research for Commodities and Forex at Globe Commodities. He has 12 years of experience in financial markets. Views expressed in this article are author's own and do not represent those of ETMarkets.com. Readers are advised to consult their financial advisers before taking any position based on these observations)
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