Oil prices climb on mixed USA inventories data

Dollar banknotes are seen through printed stock graph in this illustration

U.S. dollar banknotes are seen through a printed stock graph in this illustration taken

Thursday, March 15, 2018 /9:15 AM / /By Robert Rapier for Oilprice.com Recently, the Energy Information Administration (EIA), the International Energy Agency (IEA) and BP updated their outlooks for USA oil production. Cold weather in some parts of the northern hemisphere in January-February saw an increase in heating demand.

Oil prices have firmed since oil cartel OPECs November 2016 agreement to cut oil production by 1.2 million barrels per day (bpd), while non-OPEC members, led by Russian Federation, agreed to reduce output by 558,000 bpd. That was the fourth straight rise from 870,000 bpd forecast in November.

In its March Oil Market Report, OPEC revised up its forecast of non-OPEC supply for 2018 by 280,000 bpd, a major revision.

"There's no stopping us and OPEC's frustration levels are going to grow", said Philip Streible, senior market strategist at RJO Futures in Chicago, referring to efforts by major producers to curb output since past year.

That would be a reversal from a supply deficit in 2017 and early 2018. They have extended the pact until the end of 2018. When near-term prices are lower than prices further out, it can make it profitable to store oil for the future, which can be a sign of oversupply and can allow a buildup in storage.

But it has also encouraged a flood of shale, fuelling a debate about the effectiveness of keeping the curbs in place.

Oil pared much of an earlier gain on Wednesday after the release of the OPEC report. Analysts forecast government data today will show a third consecutive increase in USA inventories. These cuts, coupled with increased production in the United States, indicate a loss of market share for OPEC. The contract rose 25 cents to $60.96 on Wednesday.

US crude futures fell 0.8% to $60.23 a barrel, with Brent crude down 0.8% at $64.15.

Booming US production, primarily thanks to low-priced shale output, has helped cushion markets.

Official weekly USA crude production and inventory figures will be published by the Energy Information Administration (EIA) later on Wednesday.

But looming over markets has been a relentless climb in U.S. crude output, which hit another record last week by rising to 10.38-million barrels a day, up by more than 23% since mid-2016.

Still, last week's massive products draw buoyed prices on Wednesday.

It expects demand to grow at an average annual rate of 1.2 million barrels a day.

OECD commercial stocks rose in January for the first time in seven months to reach 2 871 mb. Some analysts have even predicted that the oil market could already be rebalanced.

IEA believes the oil market is likely to tighten by 2023 with increased risk of price volatility. US crude oil production reached 9.3 million b/d in 2017, a 0.5 million b/d increase from 2016.

The IEA says that "market re-balancing is clearly moving ahead with key indicators - supply and demand becoming more closely aligned, OECD stocks falling close to average levels, the forward price curve in backwardation at prices that increasingly appear to be sustainable - pointing in that direction".

Restraint shown by USA producers supports Goldman Sachs Group Inc's bullish oil view, the bank said in a report. But the market could tighten later in the year - demand picks up in the summer, Venezuela could post stronger declines as the year wears on, and inventories are expected to tighten.

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