Crude oil lower despite strong Chinese growth and API data

Traders work on the floor at the New York Stock Exchange in Manhattan New York
Traders work on the floor at the New York Stock Exchange in Manhattan New York City U.S

16 March, 2018

OPEC's attempts to underpin crude oil prices are being undermined by the United States oil industry. (It was also the topic of a recent article). And since these wells require less labour to bring online, they are a source of low cost production. 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. The base case projects growth of approximately three million BPD over the next five years.

"Recent signs of protectionism from the USA are a risk to the forecast, raising the possibility of a global trade war", the IEA said. EIA's March Short-Term Energy Outlook forecasts USA crude oil production to increase by 1.4 million b/d in 2018 and the Brent-WTI spread to average $3.96/b. "By the end of this year, it might also overtake Russian Federation to become the global leader". USA crude oil exports to China accounted for 202,000 b/d (20%) of the 527,000 b/d total increase.

Refined products inventories are also being winnowed down. In this case, US tight oil could potentially grow to around 15 million BPD and remain at that level for the rest of the Outlook period.

The IEA upwardly revised its global oil demand forecast to 99.3 mb/d in 2018.

China's factory output and investment growth unexpectedly accelerated in the first two months of the year amid robust global demand.

However, Moody's believed that prices will remain range bound and possibly volatile, amid increases in USA shale production, reduced global supplies and potential noncompliance with agreed production cuts.

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.

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Still, surging USA crude output continued to stoke fears.

Faster-than-expected growth in demand due to a robust world economy has added a tailwind to the OPEC supply effort.

OPEC is just getting around to acknowledging this fact. Continental Resources CEO Harold Hamm has also questioned these optimistic production forecasts.

Iraq is talking with the Kurds and Turkey about restarting crude shipments from fields in the Kirkuk area of northern Iraq, Oil Minister Jabbar al-Luaibi told reporters in Basra. We saw oil get flipped between being higher or lower on the day at least 9 times.

Indeed, the recognition that USA shale is going to grow more than expected likely means that OPEC realizes it will need to keep the cuts in place longer than it had planned. That presents both risks and opportunities.

Paul Sheldon, associate director, S&P Global Platts Analytics' PIRA Energy Analytics, said Wednesday that the impact of any change to the Iran deal may be delayed until late this year or early next year as worldwide buyers could be given time to adjust. Other countries with a risk factor include Libya, and, to a lesser extent, Nigeria.

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