Russian Federation starts oil output cuts

With the market paying close attention to stepped-up USA drilling activity, oil futures could also come under pressure from weekly US inventory data that shows a significant increase in production.

US propane stocks decreased by 4.5 million barrels last week to 79.7 million barrels as of January 6, 2017, 12.2 million barrels (13.3%) lower than a year ago.

"With OPEC putting a floor on oil prices, operators have greater confidence to drill and complete, although the early stages of the recovery will be uneven", Barclays analysts wrote in a report.

There are already signs that this is occurring with USA oil production lifting to 8.95mb/d last week, leaving it only 0.66mb/d below the peaks reached in June 2015. A massive ~1.9 Mb/d wow increase in crude imports to more than ~9 Mb/d, as well as depressed domestic product demand ("product supplied") drove the inventory builds, which the market evidently views as temporary. For a time overnight, Brent cost less than US$55 per barrel and WTI was priced below US$52 per barrel.

Spending on offshore projects is expected to fall 20-25 percent in 2017, compared with estimates of a 34 percent fall in 2016.

Prices climbed 2.8 per cent on Wednesday as the Energy Information Administration said that U.S. refineries used 17.1 million barrels a day of crude last week, the most in weekly data compiled since 1989.

In November 2016, OPEC agreed to cut oil production by 1.2 million barrels per day to 32.5 million barrels per day for the whole cartel starting 2017.

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Prices were also lifted by news of record Chinese auto sales, which grew by 13.7% between 2015 and 2016 to 28 million sold vehicles. "The OPEC cut has raised prices, and that now makes it profitable to send European oil to Asia", said one senior trader with knowledge of the deals on condition of anonymity as he is not allowed to talk to media. "Russian Federation has also instructed its oil companies to curb their output". The cuts falling to a share of the Kingdom are expected to be mainly focused on Europe and the United States as the exporter targets excess inventories.

Iraqi Oil Minister Jabbar al-Luaibi said his country had reduced production by 170,000 barrels per day so far, adding that he hoped for a price of US$65 per barrel.

Falih told a conference in Abu Dhabi global demand for oil would grow by more than 1 MMbbl/d in 2017 and the market would tighten in two to three years.

The amount of Iranian oil held at sea has dropped to 16.4 million barrels, from 29.6 million barrels at the beginning of October, according to Thomson Reuters Oil Flows data.

Analysts expect US refinery utilization to show a 0.3 percentage points drop for the latest reporting week to 91.7% of capacity, which if confirmed, would exceed the year-ago level of 91.2%.

Iran's surging tanker exports weren't the only indicator of plentiful supplies.

  • Rita Burton