Published: Sat, January 13, 2018
Finance | By Loren Pratt

Oil prices high on expectations of USA inventory drains

Oil prices high on expectations of USA inventory drains

In addition to the Opec and non-Opec production cuts of 1.8 million barrels per day (bpd) that are due to last until the end of 2018, oil prices have found support from eight consecutive weeks of United States crude inventory drops. Earlier in the session, prices hit US$63.67, their highest since December 9, 2014.

A broad, global market rally, including stocks, has also been fuelling investment into crude oil futures.

The agency said its forecast of $60 Brent this year and $61 in 2019 is based on an expectation that global oil inventories will rise this year and next, contributing to a decline in Brent prices in the first quarter of the year, with prices expected to remain relatively flat thereafter through 2019.

Much of the production growth will be concentrated in the Permian Basin, the largest US oilfield stretching across Texas and New Mexico, said John Staub, the EIA director of the office of petroleum, natural gas and biofuels analysis.

USA crude oil production is expected to hit 10 million bpd next month, behind only Russian Federation and Saudi Arabia. 2019 USA production is forecast to average 10.8 million bpd, and to top 11 million bpd in November 2019, the agency said. Analysts warned the market is not paying enough attention to US production increases.

The rally has brought out some concerns that the market could overheat, especially as USA production is expected to rise to new records. By many estimates USA production is set to take off this year - which is concerning for many other producer nations.

Only Russia C-RU-OUT and Saudi Arabia PRODN-SA have produced more crude, hitting peak output of over 11 million bpd and about 10.7 million bpd respectively in recent years. Demand is expected to climb an additional 340,000 bpd in 2019 to 20.65 million bpd, the agency said. This is the first STEO to forecast through 2019 and it contains updates for 2018 forecasts. Average Asian physical crude oil prices also moved over $70 per barrel in January.

Overall, dry natural gas production averaged 73.6 billion cubic feet per day in 2017, up 1 percent from 2016. EIA said if the 6.9 bcf increase is achieved in 2018, it would be the highest on record. The EIA is forecasting that the average price of gasoline for all of 2018 will be $2.57 a gallon, up from $2.42 a gallon in 2017.

China, by far Asia's biggest oil consumer, is now producing so much fuel that its refiners have turned to exports to find buyers.

Near-term outlook for USOIL remains constructive as crude prices clear the May 2015-high ($62.56), while the Relative Strength Index (RSI) extends the bullish formation from the previous month and pushes deeper into overbought territory.

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