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Oil prices drop on rising US production, weaker refined products demand

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Oil prices fell on Friday as investors grow more concerned about rising US output. Getty Images photo by Stephen Saks.

Oil prices down as Baker Hughes reports drop in US rig count

Oil prices fell in trading on Friday, undercutting a 10 per cent rally in December, as rising US production and a weakening demand for refined products overshadowed ongoing tensions in Iran.

“The holiday demand surge that we get is in the rearview mirror,” John Kilduff at Again Capital told Reuters. “That, coupled with the rebound in U.S. production is helping to undercut some of the recent price strength.”

By 2:09 p.m. EST, Brent crude dropped 42 cents to $67.65/barrel.  On Thursday, Brent hit $68.27, the highest since May 2015.  US WTI fell 55 cents to $61.46/barrel and the Canadian Crude Index was down to $39.98.

“The protests in Iran add more fuel to the already bullish oil market mood,” Norbert Ruecker, head of commodity research at Swiss bank Julius Baer told Reuters. However, with no new outbreaks reported Friday, market tensions over Iran were somewhat eased.

On Friday, Baker Hughes reported the US oil rig count fell by five, dropping the oil rig count to 724, up 213 from this time last year.  In Canada, the oil rig count rose by 36 to a total of 98, up from 81 at this time in 2017.

According to the US Energy Information Administration, US crude stocks fell by 7.4 million barrels in the week ending Dec. 29 and now sit at 424.46 million barrels.  That is down 20 per cent from highs in March 2017 and close to the five-year average of 420 million barrels.

The EIA reports US crude production rose to 9.78 million barrels per day (b/d).

Analysts are concerned the bull run in oil prices will not last as production in Iran remains unaffected by the protests and US output continues to rise to levels near Saudi Arabia and Russia.

Reuters reports bank Jefferies said the oil price “upside from here is not obvious to us”. The global investment banking firm added it expects the oil market to remain undersupplied through this year.

Norbert Ruecker said expectations of crude prices remaining over $60/barrel paint an “overly rosy picture”.

“Oil production disruptions (in Iran) remain a very distant threat … disruptions in the North Sea have been removed … (and) U.S. oil production surpassed the 2015 highs in October and is set to climb to historic highs this year,” he told Reuters.

“While the current momentum suggests that further upside is on the cards, it must be kept in mind that U.S. shale remains a threat to higher oil prices,” Lukman Otunuga, analyst at FXTM, told Reuters.

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Posted in: Energy Financial

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