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.
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