Crude oil futures surge to Rs 4245 per barrel

Posted February 05, 2018

Production rose above 10 million barrels a day for the first time in more than four decades in November, while USA crude stockpiles broke a 10-week run of draw-downs last week, Energy Information Administration data showed Wednesday. Production in the Federal Gulf of Mexico reached 1.67 million b/d, up 14% from the October 2017 level as the region recovered from Hurricane Nate.

With the oil market much more precariously balanced than it was just six months ago, geopolitical events and supply outages are having a much more profound impact on the oil market.

In January of 2017, when oil prices were trading at around $50.00, the regional production was 621,000 barrels a day.

Thursday's price jump followed by a bullish forecast by Goldman Sachs.

"Led by USA production, particularly in the Permian Basin, and new oil sands projects in Canada, non-OPEC production is forecast to continue growing through the end of 2019", EIA acting Administrator John Conti said in a statement last month.

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After increasing relatively steadily since 2011, tight oil production began to decline after the West Texas Intermediate (WTI) oil price decreased from $105/bbl in June 2014 to a low of $30/bbl in February 2016, EIA said. Oil and Gas Journal economist Conglin Xu said that will see the USA overtake Saudi Arabia and possibly Russian Federation.

U.S. crude inventories rose by 6.8 million barrels last week, after 10 straight weeks of declines, U.S. Energy Information Administration data showed on Wednesday.

Meanwhile, West Texas Intermediate crude prices rose 25 cents to $66.04, while Brent, used to price worldwide oils, was up 25 cents, at $69.90 a barrel at the New York Mercantile Exchange.

When I look at the supply side, I can't help but be bearish on oil prices this year.

Brent for April settlement was at $69.87 a barrel on the London-based ICE Futures Europe exchange, up 22 cents. "Fundamentally speaking, there's a high chance that the US will boost production and conflicts could also increase among OPEC nations if prices continue to surge". Yet, the bank said its view was cyclical and sees Brent dropping down to US$60 a barrel by 2020.

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Inventories are reported with a two-month lag, so by the time they have reached the five-year average, OPEC may be late to react.

Other analysts are not convinced that the markets justify such a high price.

In January the biggest increase in supply came from Nigeria, where some shipments originally planned for export in December slipped into January, according to loading programmes and tanker data.

America's oil renaissance also has huge implications for Canadian oil producers and the wider economy, which has manifested itself in many direct and indirect ways.

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