19 December, 2018
A drop in US crude stocks also boosted oil, which has been riding higher on expectations that the OPEC-led planned output cuts would re-balance the market in 2019. As a result, Azeri oil supply will decline by 0.02 mb/d to average 0.78 mb/d next year.
Monday's price dip tells us two things, says PVM Oil Associates in London: "Either the 1.2 million bpd reduction in the production of the OPEC+ group is not deemed sufficient by the market, or there are other bearish factors at work".
With prices falling, unprofitable shale producers will eventually stop operating and cut supply, but that could take some time, and meanwhile inventories keep growing. U.S. West Texas Intermediate crude futures were at $52.16 U.S. per barrel, up 51 cents, or 1%.
Oil producers may have to contend with a "significant" oversupply even as Opec and its allies led by Russian Federation cut output in the first half of 2019 to balance the market, the International Energy Agency said. Investors breathed a sigh of relief across broader stock markets.
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But as we go through seasonal demand peaks and the Iran sanctions waivers issued by Washington to 8 major oil-importing countries come off, "we will start to see the market tightening up", Yazhari said, noting that the market has not felt the full impacts of those sanctions yet, created to cripple the energy sector of OPEC's third-largest producer. Alberta's plan to boost crude prices through mandatory production cuts is working a little too well, and the price of heavy Canadian crude has more than doubled.
US crude inventories USOILC=ECI fell by 1.2 million barrels in the week to December 7, compared with market expectations for a decrease of 3 million barrels. Total volume traded December 12 was 14% above the 100-day average.
On Wednesday, the API reported a massive build of -10.180M million barrels inventories, compared with analysts' expectations for -525K barrels draw. As oil-product exports from the United States jumped to a fresh record, refineries operated at 95.6% of capacity in the week ended November 23, the highest ever for this time of year. According to PVM, investors have pulled almost $50 billion out of the two major crude oil futures contracts since the latest rout started in October.
A third OPEC watcher, who also saw the deal as vague, cited the potential for unplanned output losses such as at Libya's Sharara oilfield to give tailwind to pledges of lower supply. Oil demand growth in Asian emerging markets remains in focus as weaker local currencies and higher crude prices could weigh on countries' purchasing and consuming power, Malaysia's state-owned energy company Petronas cautioned this week.