Oil prices up on lower rig count, despite low US demand

Oil prices dip in see-saw trading

Oil prices rose slightly in see-saw trading Friday on weak US demand, but prices were underpinned by a sharp decline in Iraqi crude exports and a falling US rig count.

Benchmark Brent crude was up by 31 cents to $57.54/barrel by 2:18 p.m. EDT and US WTI crude rose by 15 cents to $51.66.

“We’ve continued to see signs that the market needs a steady drumbeat of positive information,” Gene McGillian, director of market research for Tradition Energy told Reuters. “This week’s DOE report where gasoline demand dropped to its lowest since March gave a little pause to that.”

According to Reuters’ sources, oil exports from the Kurdistan area of Iraq transported on a pipeline to the Turkish port of Ceyhan amounted to about 216,000 barrels per day (b/d) on average.  Usually, the region exports 600,000 b/d.

This week, Iraqi troops regained control of two oilfields northwest of Kirkuk from Kurdish fighters.  The Iraq oil ministry says it will bring fields back online by Sunday.

In a deal worth $1.8 billion, Rosneft, Russia’s biggest oil company, will take control of the main pipeline from Kurdistan.

Olivier Jakob, chief strategist with Petromatrix told Reuters that the deal with Rosneft “makes it a bit harder for Baghdad to to anything against those flows.”

Market shifting towards rebalance

With increasing global demand and US crude stocks declining, a number of analysts say the oil market is on a path towards rebalancing.

On Friday, Baker Hughes’ rig count showed the total US rig count is down by 15, with seven fewer oil rigs and oil rigs down by eight.  In Canada, the rig count is down by 10, five less oil rigs and five fewer gas rigs.

“The oil market has moved into modest undersupply and we expect this will persist at least through the end of the year,” Reuters reports U.S. investment bank Jefferies said.

The US Energy Information Administration data shows US crude stocks have fallen 15 per cent from March highs, and now sit at 456.5 million barrels, below levels seen in 2016.

Part of the drawdown is due to significantly increased exports.  US WTI is just under $7 cheaper/barrel than Brent, making American more attractive to overseas customers.

US crude shipments rose to about 2.6 million b/d in October.

“While outbound shipments recently approached 2 million b/d, our math suggests that physical bottlenecks are unlikely to kick in until waterborne exports approach 3.2 million b/d,” RBC Capital Markets said.