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

Oil prices retreat, but set for fourth week of gains By

Oil prices retreat, but set for fourth week of gains By

The market was supported by OPEC-led production cuts and expectations that USA crude inventories have dropped for an eighth week. Sure, we will see some Improvements in technology and rising prices will get us to produce more oil at some point, but it may take a major price spike before the markets get the message.

In its previous forecast, issued a month ago, the EIA saw production growth of 780,000 b/d in 2018. West Texas Intermediate, the US benchmark, was up 0.66 percent to $62.14 per barrel.

US crude production is forecast to average 10.3 million bpd in 2018, which would be the highest annual average USA production, surpassing a previous record of 9.6 million bpd in 1970.

The rally in oil prices, which are up 59 percent since 2017 lows reached in June, has been driven by a number of forces, including increased demand and continued production cuts.

But the US refining sector is running near capacity, turning oil into a growing supply of gasoline, diesel and heating oil. Moving that crude oil from the United States to Asia costs approximately $0.50/b more than to ship Brent from the North Sea to Asia. Between January and October 2017, U.S. production rose by 812,000 barrels per day, according to the U.S. Energy Information Administration (EIA).

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 US crude inventory drops. EIA expects OPEC crude oil production to increase by 0.2 million b/d in 2018 and by an additional 0.3 million b/d in 2019 as it slowly returns to pre-agreement levels.

That would match the all-time monthly record of 10.04 million bpd set in November 1970; oil production declined after that as the United States increasingly relied on imported crude. This condition was most likely the result of over-production that drove prices down over the last five years.

In the Bakken production is expected to average 1.2 million bpd this year and 1.3 million bpd in 2019, up from 1.1 million bpd in 2017.

Eagle Ford production is expected to be from 1.2 million bpd to 1.3 million bpd this year and next, which EIA said is slightly above the 2017 level. Since mid-July, Saudi, the largest producer pledged to lower crude oil exports.

Federal U.S. estimates show total crude oil production hit 9.78 million barrels per day in the week ending December 15, a record high that Craig said was out of reach because of the recent U.S. cold snap. The average production in 2019 will rise 580,000 bpd to 10.85 million bpd, the agency said in its first outlook for next year. 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. The EIA expects global inventories to increase by 300,000 b/d in 2019.

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