Published: Mon, February 05, 2018
Markets | By Erika Turner

Oil Prices Soften as US Production Eclipses 10 Million BPD

Oil Prices Soften as US Production Eclipses 10 Million BPD

Even the US Energy Information Administration's report Wednesday that US crude production reached 10.04 million b/d in November, the highest in 47 years, could be masking tightness in some parts of the market, independent analyst Anas al-Hajji said.

A new floating production storage and offloading vessel (FPSO) arrived in Nigeria this week, adding 200,000 barrels per day to offshore output capacity. Overall market conditions remained strong due to the production cuts and healthy demand-growth. The meeting ended with signing an agreement to reduce oil production by a total of 558,000 barrels per day starting from January 2017.

Yesterday, Goldman Sachs, which has been bullish on oil for some time released a statement arguing that crude oil could reach more than $82 a barrel in the coming week. The more oil prices rise, the bigger the eventual response from the shale drillers will be - which is why Opec and its allies need to start planning an exit strategy from production cuts before they become self-defeating.

Brent oil prices held near $70 per barrel, supported by strong compliance with output cuts by oil cartel Opec and its ally Russian Federation, as well as expectations for strong demand growth in 2018.

Previously, the American Petroleum Institute had surprised the market when it reported an estimated build of more than 3.28 million barrels.

Demonstrating the prospects for further output growth, "drilled but uncomplete" well numbers hit a record high of 7,342 in October 2017 amid anticipated higher oil prices.

The US Energy Information Administration issued figures this week, slightly below records set back in November 1970, looking to overtake Russian Federation and Saudi Arabia as major producers.

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In world markets, oil prices were up in trading yesterday along with OPEC continued commitment to reduce supplies.

Brent for April settlement was at $69.51 a barrel on the London-based ICE Futures Europe exchange, up 46 cents.

The market reversed course after the U.S. Energy Information Administration reported gasoline inventories dropped by nearly 2 million barrels last week, and distillates like diesel declined by about the same.

West Texas Intermediate futures contracts for March delivery settled 23 cents higher Wednesday to $64.73 per barrel. The investment bank said Brent likely will average $75 a barrel over the next three months, up from an earlier forecast of $62. Meantime, the dollar stopped losing value, re-moving one of the main positive drivers for oil/fuel prices over the past two months.

"There's no doubt shale players will respond to higher prices", says Jan Edelmann, commodity analyst at HSH Nordbank AG. On Wednesday, the EIA released its weekly production and supplies report for January 26.

The surge in production is another milestone in the so-called shale revolution that opened vast reserves of oil and gas that were once trapped in shale rock formations.

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