Crude loses upward momentum amid USA output growth worries

Higher oil prices have brought more supply to the market, OPEC said Thursday in its monthly report as the producers amended their predictions for increased oil supply.

OPEC economists in their monthly market report for January said the United States is the clear leader when it comes to adding more barrels, with an increase of 62,000 barrels per day previous year.

As a result, the OPEC, along with some Non-OPEC members such as Russian Federation, chose to pull back their oil output by 1.8 million barrels per day (bpd) from January of 2017 until March of 2018. However, the oil market could finally achieve equilibrium this year, believes the minister: "I am expecting that we will still see corrections in 2018 and... the market fully achieving the balance".

Brent crude for March, the global oil benchmark, gave up 70 cents, or 1%, to $68.61 a barrel on London's ICE Futures exchange. As a result of new investments, the production in the U.S. could reach 11 million barrels per day during the year, surpassing Saudi and Russian yields, shows the official government forecasts.

As a result of lower Venezuelan production, the IEA said OPEC's crude output in December fell to 32.23 million bpd, boosting the group's compliance with a deal to curb output to 129 per cent.

US crude production now stands at 9.9 million barrels per day, the country's highest level in nearly 50 years, and the IEA now expects a "record-setting" 2018. There are many reasons for concern, but the top of the list is how United States production will respond. Even at these forward levels, the price is above the cost of production for a lot of shale producers.

OPEC in its report raised its forecast for 2018 non-OPEC supply growth by 160,000 barrels per day (bpd), or 16 percent, to 1.15 million bpd, and it also revised total US crude supply growth higher by 110,000 bpd to 820,000 bpd. Crude supplies at the Cushing, Oklahoma delivery hub for USA crude futures fell 4.2 million barrels in the week, the largest draw since at least 2004.

There are also indications that OPEC and non-OPEC members may be looking at an agreement beyond 2018 that may be in the form of a collective ceiling on production that would reflect more equity and be harder for countries like Kazakhstan to cheat, sources at the meeting in Oman told some reporters.

In fact, by 2012, the crude scenario appeared changing as the long-term impact of the shale revolution began to unfold.

The IEA then underlined that the USA energy market was going through radical upheaval, sparked by the development of new technologies, especially the extraction of shale gas through a controversial process called "fracking" that has been limited or banned in other countries.

Jeffrey Halley, market strategist at futures brokerage Oanda in Singapore, said crude futures had been at "overbought levels for an extended period as record speculative longs built on the futures markets".

  • Zachary Reyes