Crude oil lower despite strong Chinese growth and API data

Oil prices climb on mixed US inventories data
OPEC sees oil supply surge from US countering its cuts

16 March, 2018

LONDON-Oil prices were mixed Thursday morning, as investors weighed signs of growing global oil demand and surging U.S.shale production.

All this points to American crude output exceeding expectations in output terms; within OPEC, Iran is lobbying to keep oil prices at US$60, fearing that a US$70/b target will only encourage additional U.S. shale output.

For 2018, oil demand growth is anticipated to be around 1.60 mb/d and global oil demand is now expected to reach 98.60 mb/d, marginally higher than last month's assessment. According to the Commodity Futures Trading Commission, money managers cut their combined net long positions in the six most important futures and options contracts linked to petroleum prices by 50 million barrels in the week to March 6.

In a monthly report, the Organization of the Petroleum Exporting Countries said non-OPEC producers would boost supply by 1.66 million barrels per day in 2018.

Venezuela is likely to remain the biggest risk factor among leading oil producers for some time to come, according to the latest report from the International Energy Agency (IEA). The EIA said that demand based on products supplied averaged 20.4 million barrels per day, up by 3.2% from the same period a year ago. But make no mistake, OPEC is conceding that USA shale is surging, which complicates the cartel's calculations for rebalancing the oil market.

"Crude oil production losses are increasingly widespread and affecting joint ventures", the US Energy Information Administration said in a report posted on its website Tuesday.

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US bank Goldman Sachs said in a note that there was a "potentially large increase in (U.S.) drilling activity in coming weeks".

In an unusual news release Wednesday, Saudi Arabia's national oil company said it would continue cutting crude oil production, signaling its commitment to a production cap agreement after Iran called for gradually lifting output curbs. Oil reduced its decline after the industry report showed United States fuel stockpiles fell last week. Distillate inventories fell by 4.36 million barrels to the lowest level since December. Output has been helped by the 25% rise in oil prices over the past year, along with improvements in efficiency and technology.

Traders of crude oil cargoes face a dilemma.

OPEC is now talking of looking at other metrics to assess the market's rate of return to balance.

This scenario would continue a trend that started a decade ago when the U.S.'s production gains began to outstrip those of OPEC, as well as every other oil-producing country in the world. Wall Street analysts like Goldman Sachs Group Inc. and JPMorgan Chase & Co. remain convinced prices will strengthen again, but some key data suggest the problem could run deeper. One Group Disagrees Interestingly, some USA oil producers dispute these rosy growth scenarios. Petroleum could be near the most significant low since Mid-June of past year as crude oil and crude products will be tight as we kick off what I predict will be a record summer demand season.

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