Published: Sat, January 13, 2018
Money | By Armando Alvarado

Oil prices sit at three-year highs as march to $70 slows

Oil prices sit at three-year highs as march to $70 slows

Expectations of another drain on USA crude oil inventories supported a soft increase in oil prices early Tuesday, though a reversal may be overdue.

Oil prices fell yesterday after hitting a three-year high over $70 a barrel the previous day, but remained on track to post a fourth straight week of gains.

Brent crude futures settled at US$69.20 a barrel, up 38 cents. Brent in London traded around $US68.55 per barrel, a new 2 ½-year high.

In a short-term market report, the U.S. Energy Information Administration said it expects total U.S. crude oil production to increase by nearly 1 million barrels per day this year and easily break all-time records with an expected average output above 10 million barrels per day.

“EIA forecasts USA crude oil production to grow by 980,000 barrels per day in 2018, and we expect most of that growth to come from tight rock formations in Texas and North Dakota, ” he said. EIA's latest Short-Term Energy Outlook (STEO) from earlier this week estimated that USA crude oil production averaged 9.3 million bpd in the whole of 2017, and 9.9 million bpd in December alone.

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At this consumption level, a dollar increase in crude price on a permanent basis will increase the oil import bill by roughly Rs 10,000 crore per annum.

OPEC and non-OPEC participants agreed on November 30, to extend the production cuts through the end of 2018 in an effort to reduce global oil inventories. An oversupplied market contributed to a sharp decline in crude oil prices, which dropped below $30 per barrel two years ago. This condition was most likely the result of over-production that drove prices down over the last five years.

With global oil prices solid at the moment and expected to rise, the 11 million barrels a day forecast is ominous for the buoyant oil market and OPEC in particular which may be forced to extend is production cap past the end of 2018 and well into 2019. That level would be the highest annual average on record, surpassing the previous record of 9.6 million b/d set in 1970.

US production growth is estimated at 1.5 million bpd in 2018 and 1 million bpd in 2019, with Canada and Brazil expected to contribute combined growth in both years of some 400,000 bpd. Demand is expected to climb an additional 340,000 bpd in 2019 to 20.65 million bpd, the agency said. The average production in 2019 will rise 580,000 bpd to 10.85 million bpd, the agency said in its first outlook for next year. On Jan. 9, the World Bank increased its global economic growth estimates for 2018 to 3.1 percent after growth in 2017 was stronger than expected. Nigerian crude oil production is sparred so far, though the OPEC members's national security earned it an exemption from the multilateral balancing act. GasBuddy also released a forecast for 2018 last week that predicted gas prices will be at their highest levels since 2014.

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