Oil declines to 2-week low as stocks slide

10 February, 2018, 08:55 | Author: Lora Ball
  • An offshore oil platform is seen at the Bouri Oil Field off the coast of Libya

The U.S. Energy Information Administration on Wednesday reported U.S. crude output climbed to 10.251 million barrels a day last week - a weekly record - mainly as a result of relentless shale production.

According to the agency's short-term energy outlook, Brent crude oil is forecast to average $62.39 per barrel in 2018, against EIA's Januray projections of $59.74/bbl.

The number of rigs drilling for crude in America jumped to the most in nearly six months, and US output breached 10 million barrels a day in November, the highest in more than 40 years.

"Brent crude oil spot prices averaged $69 per barrel in January, an increase of $5/bbl from the December level".

In contrast to declining domestic production, EIA estimates that growth in China's consumption of petroleum and other liquid fuels in 2017 was the world's largest for the ninth consecutive year, growing 0.4 million b/d (3%) to 13.2 million b/d. The 1.2-1.8 million-barrels-per-day cut in output, which was enforced from January 2017 in response to a sharp fall in crude-oil prices that hovered around $40 per barrel in late November, had some effect in driving prices higher.

Strengthening of the dollar is an unfavorable factor for commodity assets, prices of which are denominated in USA currency, as it increases the value of these assets for holders of other currencies. Stock indexes from Japan to Germany tumbled on Tuesday after a frantic sell-off in US shares sent the Dow Jones Industrial Average to its biggest loss in 6 1/2 years.

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USA oil shipments to China have surged, creating trade between the world's two biggest powers that until 2016 just did not exist, and helping Washington in its effort to reduce the nation's huge trade deficit with China.

The futures market is in backwardation where prompt oil prices exceed those for future delivery 0#CL: , suggesting investors expect demand to outpace supply.

Oil services company Baker Hughes said total US onshore rigs rose by 26 to 791, the highest since April 2015 and the biggest one-week rise in a year. Whether this is a blip or the beginning of a longer term decline in crude prices is still an open question. Distillate production averaged over 5.1 million barrels a day last week, up about 500,000 compared to the prior week's production. Major indexes rose more than 1 per cent in a drastic swing after starting the session 2 per cent lower from Monday.

"Thus a real pain-trade has not yet hit the oil market", said Bjarne Schieldrop, head of commodity strategy.

The Forties pipeline, which carries around a quarter of all North Sea crude oil output and roughly a third of Britain's total offshore natural gas production, shut down on Wednesday for the second time in two months, after a feed control valve closed at its Kinneil facility in Scotland.


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