Oil prices high on expectations of U.S. inventory drains

Frederick Owens
January 11, 2018

Ken Medlock, director of an energy-studies program at Rice University in Houston, says an assessment Tuesday, Nov. 15, 2016, by the U.S. Geological Survey that the Wolfcamp Shale in the Midland region could yield 20 billion barrels of oil is another sign that "the revival of the Permian Basin is going to last a couple of decades".

The Energy Information Administration said that output would average 10.3 million barrels per day this year, 970,000 barrels a day higher than in 2017.

One day after a persuasive argument was made that fundamentals aren't strong enough to support current crude prices, West Texas Intermediate on Tuesday skyrocketed by $1.23 to settle at a more than three year high of $62.96, and Brent reached $69.08, its highest level since May of 2015.

Members of the Organization of the Petroleum Exporting Countries fear current price gains could prompt US shale oil companies to flood the market.

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Brent for March settlement climbed 16 cents to end the session at $67.78 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate crude (WTI) gained 36 cents to $62.09 and reached its highest since May 2015 as well at $62.56.

A broad, global market rally, including stocks, has also fed investment into oil futures. The Organization of Petroleum Exporting Countries, with help from big producers like Russian Federation, are working to drain the surplus through managed production cuts, now in their second year. OPEC in December, however, produced about 50,000 barrels per day more than in November.

An oversupplied market contributed to a sharp decline in crude oil prices, which dropped below $30 per barrel two years ago. As U.S. shale producers blaze ahead at turbo-speed, the EIA's number crunchers have taken note.

Craig at Platts, meanwhile, said gasoline demand could inch lower and it may be a matter of time before oil prices reverse course.

Regional summer price spikes can not be precisely predicted.The agency expects gasoline demand in 2018 to total about 9.3 million barrels a day this year, a level that would surpass all-time records set last year.

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