May 23, 2018

Oil slips as U.S. output offsets OPEC curbs

25 February 2018, 01:18 | Kenneth Drake

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The Energy Information Administration said in a weekly report on Thursday that US crude inventories lost 1.6 million barrels in the week to February 16.

On January 1st, 2017, after nearly a year of shuttle diplomacy, OPEC and non-OPEC producers reached their first deal since 2001 to reduce oil output jointly by nearly 1.8 million barrels a day.

"The US is pumping out a record amount of oil", said Naeem Aslam, chief market analyst at Think Markets UK Ltd.

The current state of crude prices, which many fear is too high and merely encouraging US shale producers to pump all out, displeases Suhail al-Mazrouei, energy minister for the United Arab Emirates: speaking at an energy conference in London, he noted that level is not encouraging the flow of investments that the oil industry needs.

"The steady oil price recovery since summer 2017 and renewed interest in growth opportunities have led to oil majors catching up in terms of exploration activity this year, both in the shale industry and offshore deep water", OPEC said, referring to the USA.

Futures advanced 1.8 percent in NY after a government report showed USA crude stockpiles slid 1.62 million barrels last week, the largest draw in five weeks.

A stronger dollar puts pressure on dollar-denominated commodities like oil. Inventories dropped further at the key storage hub in Cushing, Oklahoma, according to data from the Energy Information Administration (EIA). That helped pull down net imports to below 5 million bpd, the lowest level since the EIA started recording the data in 2001.

The Organization of the Petroleum Exporting Countries and other producers including Russian Federation agreed to cut output by about 1.8 million bpd from January 2017, removing nearly 2 percent of global supply from the market, to end a supply glut that had triggered an oil price collapse. Oil prices have come under pressure in recent weeks in tandem with a broader market selloff, along with investor anxiety over growing output from US shale.

The oil price will always be a moving target with many influences outside the market's control. Production in the OPEC-member has been running at about 1 million bpd, although it remains volatile due to unrest.

The EIA said that imports of crude to the U.S. are now at the lowest levels, just below 5 million barrels a day. Weekly U.S. production fell by 1,000 barrels from a record high.

Global demand now sits at an average of 97.6 million barrels a day.

Am I seeing the right investments coming to the market? A stronger dollar can make oil and other commodities denominated in the U.S. currency more expensive for other currency holders.

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