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Oil prices up slightly on OPEC deal, but US output concerns traders

Oil prices

Oil prices rose on Tuesday, despite increased US output and Iraq exports.  Linn Energy photo.

US shale output could keep a lid on oil prices

Building on last week’s gains, oil prices rose slightly in trading on Tuesday on confidence that the OPEC supply cut deal would be extended beyond its current deadline.

As of 1:27 p.m. EDT, Brent crude was up by 16 cents to $60.75/barrel and US WTI rose by 10 cents to $54.25.  The Canadian Crude Index rose by 85 cents to $40.37.

Prices rose despite increased oil exports from Iraq after the Middle Eastern country increased its oil exports by 22o,000 barrels per day (b/d) from its southern ports. Crude exports from the country’s northern Kurdistan region were disrupted recently after Kurds voted overwhelmingly for independence from Iraq.

In the United States, rising shale production is a concern to analysts who fear increases in US output could overshadow OPEC’s supply cuts.

“U.S. shale output could keep a lid on prices over the medium to long term,” Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers told Reuters.

According to the US Energy Information Administration, US crude production is up by 13 per cent since mid-2016 to 9.5 million b/d.

The boost in production has meant US crude is now trading at a discount of about $6.70/barrel to Brent.  The lower price is making it more attractive to refiners.

“The large differential has opened the door on regional arbitrage, driving a spike in U.S. crude exports over recent weeks,” Reuters reports BMI Research said in a note.

OPEC will meet in Vienna on Nov. 30 to discuss extending their production output deal beyond the March 2018 expiry date.  Russia and Saudi Arabia have both voiced support for continuing with the pact.

So far, participants in the agreement have mostly complied with their supply cut pledges.

Bank of America Merrill Lynch said “The OPEC deal compliance has been very firm, with rates averaging 86 percent since January.”

OPEC output in October fell by 80,000 b/d, due to production disruptions in Iraq, Saudi output below its supply cut deal pledged amount and decreasing production in embattled Venezuela, according to a Reuters survey.

Speaking with Reuters, William O’Loughlin, investment analyst at Rivkin Securities cautioned that “The fear of oversupply could easily turn to a fear of undersupply if inventories keep declining like they have been and demand continues to grow.”

Posted in: Energy Financial

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