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OPEC Boosts Demand Outlook for Its Oil as Fuel Use Strengthens

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OPEC
  • OPEC Boosts Demand Outlook for Its Oil as Fuel Use Strengthens

OPEC boosted estimates of demand for its crude this year and next amid stronger-than-expected fuel consumption and a weaker outlook for rival supply.

The Organization of Petroleum Exporting Countries raised forecasts for the amount it needs to supply in 2017 and 2018 by about 200,000 barrels a day for each year, according to a report from its secretariat in Vienna. Still, a rebound in Libyan production pushed the group’s output last month to the highest this year, undermining its plan to rebalance oversupplied world markets.

Oil prices have lost about 6 percent in London this year as production cuts by OPEC and Russia fail to clear a global glut. Yet Brent futures have stabilized above $50 a barrel this month as U.S. crude inventories diminish, signaling OPEC’s actions are finally having some impact.

The organization increased projections for global oil demand in 2017 and 2018 by about 100,000 barrels a day for each year. Consumption proved stronger than expected in developed nations during the second quarter, it said.

OPEC also lowered estimates for rival supply, by 50,000 barrels a day in 2017 and 90,000 a day in 2018, following weak output in the U.S. and Canada last quarter.

The report indicated that OPEC’s strategy to rebalance the market is having some success, with oil stockpiles in developed nations falling by 21.9 million barrels in June.

Libya, Nigeria

Still, at just over 3 billion barrels, this leaves them about 252 million above their five-year average. OPEC has said its main objective is to reduce inventories to average levels.

The plan has been complicated by a rebound in supply from Libya and Nigeria, which were exempt from last year’s agreement to cut production while they tackled domestic unrest and supply outages.

Libyan output climbed by 154,300 barrels a day to about 1 million a day in July, according to external data sources compiled by OPEC. Production from all 14 members reached 32.87 million a day.

Iraq, which has lagged behind other nations in delivering its promised cuts, showed some improvement in its adherence. The country’s output fell by 33,100 barrels a day to 4.468 million a day, still above its target.

Iraqi Oil Minister Jabbar al-Luaibi flew Wednesday to meet his Saudi counterpart Khalid Al-Falih, who has promised to increase pressure on non-compliant nations.

Saudi Absence

While OPEC uses external data — known as secondary sources — to monitor compliance with supply curbs, the report also includes production data submitted directly by member nations.

In an unusual omission, there was no direct data from Saudi Arabia for the latest month in this report. Secondary sources showed the kingdom’s output at 10.067 million barrels a day in July, slightly above its target.

Despite the production increases, the report indicated that OPEC can make more significant progress in depleting inventories during the second half of the year.

If the group’s output remains steady at 32.87 million barrels a day, it would shrink global stockpiles by about 68 million barrels.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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