Amid emerging doubts that OPEC and Russia have outdone themselves with the oil production cuts and are starting to suffer the consequences, the Energy Information Administration reported another large draw in oil inventories this week.
At 6.9 million barrels, the draw is significant enough to support a further price rise for WTI.
Yesterday, the American Petroleum Institute reported yet another draw, of 5.12 million barrels, keeping spirits high. Analysts expected the EIA to report its ninth straight weekly inventory draw, with a Reuters poll setting the size of the draw at 3.5 million barrels, the same as last week's analyst poll by Platts showed.
In gasoline, the EIA reported another build, of 3.6 million barrels for the week to January 12. That's compared to a 4.1-million-barrel build in the prior week. Production of the fuel averaged 9.7 million bpd last week, up from 9.5 million bpd in the week to January 5.
Last week, the EIA shook markets with the latest edition of its Short-Term Energy Outlook, in which the authority forecast U.S. oil production would reach 10.3 million barrels daily this year and rise further to 11 million bpd in late 2019. This has not affected prices negatively, however, as supply continues to tighten, according to observers. Related: Are Hedge Funds Pushing Oil Prices Too High?
As a result, two banks have already raised their price targets for oil for this year. BofA said it had revised its supply and demand forecast for the year and now expected a deficit of 430,000 bpd versus an earlier one of 100,000 bpd. As a result, BofA now expects Brent crude to average US$64 a barrel and WTI to hover around US$60 a barrel. That's up from US$56 and US$52 a barrel, respectively.
Some analysts are warning that in this higher-price environment OPEC and Russia may reconsider their cut strategy for this year and agree to phase the deal out earlier than the December 2018 expiry date. That's because higher oil prices are making their oil less competitive, especially with the nice discount WTI traditionally enjoys to Brent and crude blends tied to it.
At the time of writing, WTI was trading at US$63.62 a barrel and Brent was changing hands at US$68.86 a barrel.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
News flash: the whole idea of the cuts was to get the price of oil back up to a FAIR price.
News flash: less competitive? less competitive?! If you'll notice, the global stocks are drawing down and, therefore, the world needs every drop of OPEC-NOPEC supply. And they're getting Brent prices for it.
If anything, the agreement is likely to be extended. For three years the OPEC countries have been sucking from their savings accounts. In America, companies have been losing money or just making ends meet. Oil prices must go up to incentivize additional supply that's going to be desperately needed over the course of the coming years as demand goes up 1.5 million bopd every year.
The collusion and manipulation is obvious, but the longer they play this game the more production will come on line, the more subsidized renewables will gain market share, and the sooner the day when Saudi Arabia and Russia together with all of OPEC won't be able to idle enough readily available production to sustain and boost prices that are NOT justified with a glut of oil sloshing around. Personally, I hope they are stupid enough to leave the price of WTI in the mid to uppers $60 a barrel. The USA might as well sell at the best price possible. Let OPEC/Russia get idle their production and let it sit in the ground or storage until the price crashes.
1.1M barrels of drawdown on a stock pile of 411 M barrels is 0.25% . We should keep the hyperbole under control.
I like your reporting but a little bit of constructive feedback does not hurt.