Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
[Jessica Summers, Bloomberg]
Oil climbed above $45 a barrel after the Energy Information Administration cut its U.S. crude output forecast for next year and as investors focused on the pace of rebalancing.
Futures roses as much as 2 percent in New York, after earlier fluctuating between gains and losses. The EIA cut its 2018 crude output forecast to 9.9 million barrels a day from 10.01 estimated in June. The market earlier shrugged off a report that Saudi Arabia, the world’s biggest oil exporter, told OPEC it raised output above its agreed-upon limits. It’s the first time the EIA lowered its forecast for 2018 production since January.
“This pull-back in production is kind of wake-up call to people who thought that shale was going to be viable no matter what OPEC did,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone. If output doesn’t rise as much as previously anticipated, “then it’s time for the bears to start questioning their religion again.”
Oil has traded below $50 a barrel since May amid concern that rising global supplies will offset curbs by the Organization of Petroleum Exporting Countries and its partners including Russia. Increases in output from Libya and Nigeria, as well as a rising U.S. rig count and production, have been diluting the impact of supply curbs. OPEC needs to increase output cuts with little public announcement in order to jolt investors, Goldman Sachs Group Inc. said.
Saudi Arabia told OPEC it pumped 10.07 million barrels a day in June, above its 10.058 million limit set last year, according to a person with knowledge of the data.
While Saudi Arabia producing above its target is not seen as a positive sign, “if you put it in the seasonal context, people understand that Saudi Arabia typically raises production over the summer,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said by telephone.
West Texas Intermediate for August delivery advanced 75 cents to $45.15 a barrel at 12:27 p.m. on the New York Mercantile Exchange. Total volume traded was about 33 percent above the 100-day average. The contract climbed 17 cents to $44.40 on Monday, advancing after a weekly loss.
Brent for September settlement rose 75 cents to $47.63 a barrel on the London-based ICE Futures Europe exchange, after rising 17 cents to $46.88 on Monday. The global benchmark crude traded at a premium of $2.29 to September WTI.
The EIA left its U.S. crude production forecast for 2017 unchanged at 9.33 million barrels a day, the Short-Term Energy Outlook showed. It lowered its WTI price forecast for this year to $48.95 a barrel from $50.78.
U.S. crude stockpiles probably fell by 2.7 million barrels last week, a Bloomberg survey showed before an EIA report Wednesday. Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, probably dropped by 1.4 million barrels last week, according to a forecast compiled by Bloomberg.
The industry-funded American Petroleum Institute will release its inventory data later on Tuesday.
“The market’s trying to figure out the supply and demand rebalance,” Mark Watkins, a Park City, Utah-based regional investment manager at U.S. Bank Wealth Management, which oversees $142 billion in assets, said by telephone. “Investors are really looking at it from the standpoint of, do we want to exit this trade because we may see lower prices or is this a decent buying opportunity?”
- JBC Energy sees “good selling opportunity” in any oil rally toward $50 a barrel, according to an emailed report.
- A type of U.S. crude pumped in the Gulf of Mexico is proving to be more attractive in India, the fastest-growing oil market, compared with Middle East staples on offer.
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