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Oil Prices Inch Lower After API Reports Strong Crude Draw

oil industry

Oil prices fell on Wednesday from 2.5-year highs in anticipation of the U.S. crude inventory data reports.

The American Petroleum Institute (API) reported a draw of 6.0 million barrels of United States crude oil inventories for the week ending December 22, marking four large draws in as many weeks. Analysts had expected a smaller drawdown of 3.97 million barrels of the fuel.

Supply risk has increased in 2017 as a side-effect of the OPEC output cut deal, and disruptions now have a much stronger effect on oil prices in a quickly tightening market. Outages in Libya and the North Sea have pushed prices upward in recent days, with WTI briefly surpassing the $60 milestone.

On the flipside, the Permian Basin, U.S.’ most prolific shale patch, has beaten its own production record, pumping an estimated 815 million barrels of crude this year. U.S. shale producers expect to further boost output in 2018, soaring above 10.5 million bpd.

In the short term, however, increased production hasn’t led to a surge in U.S. crude inventories. In fact, analysts polled by S&P Global Platts predicted a drop in crude inventories for the fourth consecutive week, and were confirmed by this week’s API report.

Last week, the American Petroleum Institute (API) reported a large draw of 5.222 million barrels of crude oil, along with an increase in gasoline inventories of 2.001 million barrels.

This week, the API is reporting another strong build in gasoline inventories at 3.1 million barrels for the week ending December 22. The results came in close to forecasts for a 1.278-million-barrel build.

Related: Chinese Ships Caught Illegally Selling Oil To North Korea

Distillate inventories saw a surprise build this week of 2.8 million barrels, against a forecast of a 584,000-barrel draw.

Inventories at the Cushing, Oklahoma, site decreased by 1.3 million barrels this week.

The dip in US crude oil inventories comes after weeks and weeks of increasing oil production in the United States, growing from an average of 8.946 million bpd in the first week of January of this year and reaching an average of 9.789 million bpd for week ending December 15.

The U.S. Energy Information Administration report on oil inventories is due to be released on Thursday at 11:00 a.m. EDT due to the Christmas holiday.

By 4:43pm EST, the WTI benchmark was trading down 0.63% on the day to $59.59 while Brent was trading down 0.96% on the day at $65.82.

By Julianne Geiger for Oilprice.com

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  • Mamdouh G Salameh on December 27 2017 said:
    Despite efforts by vested interests including the IEA and the EIA, the price of oil rocketed to more than $66 a barrel. The oil price could be heading towards $70/barrel or even higher during 2018 underpinned by positive oil market fundamentals.

    And without fail, every time the oil price goes up, vested interests come up with claims intended to dampen the oil price such as a projected rise in US shale oil production to 10.5 million barrels a day (mbd) in 2018.

    While the US shale production has enabled the United States to reduce its oil imports, there has been a lot of hypes about it.

    1- The US shale oil industry will never be a profitable industry. US shale oil producers are so deeply in debt that they have become like the saying of “robbing Peter to pay Paul”. They are heavily indebted to Wall Street to the extent that they continue to produce oil even at a loss just to pay some of their outstanding debts.

    2- Because of a very high depletion rate estimated at 70%-90%, US shale producers have to spend billions every year to drill thousands of wells just to maintain production. In so doing they sink deeper and deeper in debt.

    3- US shale oil producers claim credit for the glut in the market since 2014 when in fact it was Saudi Arabia and OPEC members who caused the glut by producing more than 2 mbd above their production quotas.

    4- Sometime in the foreseeable future, there may not be any shale plays in the United States from where to produce oil.

    5- Threatening the oil price with claims about US shale oil production has lost its impact on oil prices. The global oil market has already seen through that ploy. The proof is the rise in oil prices which is projected to go beyond $70/barrel in 2018 and $100 by 2020.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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