Weekly Crude Oil Review: US Crude Inventories Continue To Dwindle

Traders said the lower prices were prompted by a recovery in USA oil production after a recent drop, as well as by an expected fall in demand when winter ends in the northern hemisphere.

However, losses for oil picked up in electronic trading as the International Energy Agency predicted US production will rise above 10 million barrels a day in 2018 (http://www.marketwatch.com/story/US-oil-output-could-soar-to-levels-not-seen-since-the-1970s-predicts-iea-2018-01-19), a level not visited since 1970.

USA oil production now stands at 9.9 million barrels every day, the highest level in nearly 50 years, putting it neck-and-neck with Saudi Arabia.

Over the last three months global crude prices have increased by 17 per cent.

The high oil price is now being driven by a major supply cut from oil producing group OPEC, aimed at getting rid of extra supplies and keeping prices high.

But both Mr Al Falih and Mr Al Mazroui said they did not think the rise in prices would hurt global demand for oil, according to Reuters. Some did fold or put production on hold but recent highs mean that shale companies are going back online.

The new forecast by the IEA, which advises large industrialized nations on energy policy, has significantly slashed the time it would take for Saudi to be replaced by a major competitor as the world's largest oil producer.

The IEA also noted a continuous fall in global oil inventories, stating, "The oil market is clearly tightening".

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Meanwhile, a deal between oil exporters' cartel Opec and Russian Federation to trim output has also helped mop up much of the global glut that developed in recent years.

However, as OPEC continues with its targeted production agreement, the oil has slowly turned from bearish to bullish on Middle East tension and as the market nears rebalancing. If OPEC countries plus their non-OPEC supporters maintain compliance then the market is likely to balance for the year as a whole with the first half in a modest surplus and the second half in a modest deficit.

USA oil prices are hovering just above $64 a barrel.

Early Thursday morning, West Texas Intermediate crude for February delivery traded at $63.45 a barrel, down about 0.8% compared with Wednesday's closing price of $63.95.

Prior to the meeting, Saudi Arabia's energy minister said OPEC and other big-oil producing allies should find ways to cooperate beyond their petroleum-production limits this year. As of early Friday, Brent was trading closer to $69 per barrel.

Over the weekend, OPEC and its allies will convene in Oman to discuss oil production cuts created to decrease market oversupply.

Even the hurricanes of a year ago didn't hinder the US oil production boom. In gasoline, the EIA reported another build, of 3.6 million barrels for the week to January 12. "Production was steady on a year ago as non-OPEC gains of almost 1 mb/d offset declines in OPEC".

  • Rita Burton