Published: Wed, March 14, 2018
Worldwide | By Gretchen Simon

Oil up, but Opec sees rapid growth in rival supply

Oil up, but Opec sees rapid growth in rival supply

US crude inventories rose by 1.2 million barrels in the week to March 9, to 428 million barrels, the American Petroleum Institute said on Tuesday.

Shale oil - which accounts for the majority of US supply - is expensive to produce, and is therefore unprofitable when prices are low.

April West Texas Intermediate crude fell 34 cents, or 0.6%, to $60.37 a barrel on the New York Mercantile Exchange. This week, the API reported a draw of 1.262 million in gasoline stockpiles, largely in line with the 1.176-million-barrel draw that analysts had expected.

If Trump walks away from the Iran nuclear deal on May 12 (the date of the next United States sanctions waiver), crude oil prices are likely to rise as global supply falls.

Earlier in the day, oil prices got a boost from a broader investor push into commodities after Chinese data showed the world's largest importer of raw materials saw industrial production grow more than expected over the first two months of the year.

"Saudi Arabia continues to lead by example by producing below the production targets it agreed to", the energy ministry said in the news release.

On Monday, the EIA said production from major US shale formations should rise by 131,000 barrels per day in April vs. the previous month to an all-time high of 6.95 million bpd. Gasoline futures surged 1% as stockpiles sank the most since September.

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Total products supplied over the last four-week period averaged 20.4 million barrels per day, up by 3.2 percent from the same period a year ago.

In terms of the five-year average of OECD commercial stocks that OPEC is officially targeting in the production cut deal, preliminary data for January showed that total OECD commercial stocks were 50 million barrels above the latest five-year average, with crude stocks at a surplus of 74 million barrels and product stocks at a deficit of 24 million barrels to the seasonal norm.

"With the tug of war between the USA and OPEC the soap opera continues", said Scott Gecas, senior strategic account executive at Long Leaf Trading Group.

Longer term, the International Energy Agency expects US shale to cover 80% of the additional oil demand the world will see through 2020 and 60% by 2023, as Permian production doubles.

US production growth is still expected at 2.7 percent in 2018, up from 2.3 percent in 2017.

Copper CMCU3 and palladium XPD= , a key component in gasoline-powered vehicles, both rose around 1 percent, which in turn encouraged a bounce in the oil price.

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