Profit Taking Eats At Crude Oil Gains

The world’s most expensive oil

The world’s most expensive oil

Weekly data from the US Energy Information Administration (EIA) showed crude stockpiles fell by 4.9m barrels, more than the 3.89m barrel draw analysts expected, according to Thomson Reuters.

Prices came off highs after an early surge that took benchmarks past key resistance levels that produced a flurry of buying in an active day in the market. With the typical inverse link between crude prices and the dollar taking hold once again in the second half of the year, oil got another shove.

“EIA estimates that OPEC countries cut crude oil production output in 2017, but those cuts were offset by increased production in non-OPEC countries, especially the United States and Canada, ” EIA Acting Administrator John Conti said in a January 9 statement. "Recent price strength can be partially explained by dollar weakness, and both are the result of strong global economic growth", said Jan Edelmann, commodity strategist at HSH Nordbank AG.

Markets remained buoyed by the comments throughout the session, shrugging off data that suggested the US production may continue to surge. 2019 US production is forecast to average 10.8 million bpd, and to top 11 million bpd in November 2019, the agency said. In 2019, crude oil production is forecast to rise to an average of 10.8 million b/d.

The rally has brought out some concerns that the market could overheat, especially as USA production is expected to rise to new records.

There are conflicting views about how sustainable the increase in USA production is, and to what extent it actually exists. This is the first STEO to forecast through 2019 and it contains updates for 2018 forecasts.

US demand growth of 150,000 bpd was estimated for 2017, slightly lower than previous expectations. OPEC, along with non-members including Russian Federation, have extended through the end of this year a deal to cut supply by 1.8 million bpd. Demand is expected to climb an additional 340,000 bpd in 2019 to 20.65 million bpd, the agency said. While surging economic growth helped demand to soar in 2017, the US dollar slid through most of the year as other global economies fared better.

The EIA is out with the latest edition of its Short-Term Energy Outlook, examining projections for the energy industry for the next two years.

Saudi Arabia and a number of Persian Gulf producers reduced crude oil production in support of the agreement. These liquids are less valuable than gasoline and diesel to refiners and largely are destined to the export market, where they are sold relatively cheaply. Export price index is expected to be 0.3 percent, down from 0.5 percent a month ago.