By December 15, 2017 Read More →

Rising US output keeps a lid on oil prices gains

Oil prices

Oil prices were mixed on Friday with Brent dropping slightly and WTI making small gains. Chevron photo.

Oil prices mixed with Brent down slightly, WTI up

Oil prices were mixed on Friday and sat below two-year highs as rising US output overshadowed the outage of a North Sea crude pipeline and the OPEC supply cut deal.

By 1:00 p.m. EST, Brent crude futures were down 4 cents to $63.27/barrel and US WTI was up 27 cents to $57.31/barrel.  The Canadian Crude Index rose to $34.39.

Gene McGillian, senior analyst at Tradition Energy told Reuters that speculators have staked out long positions and are betting that the OPEC production cuts will reduce the global oversupply of crude.

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But, US production is likely to continue to grow should oil prices rise.

“There’s a fight in the market,” McGillian told Reuters.  “Exactly how that is going to play out is going to be the determinant of how our prices move in the first half of the year.”

Michele Della Vigna, head of energy-industry research at Goldman Sach believes that in 2018, major oil companies will have a surplus of cash to fund dividends, major projects and will be successful in tax negotiations with a number of governments.

Vigna argues that cost cutting along with lower oil prices keeps smaller competitors out of the biggest projects and have created an environment where only major players can compete.  He says that will likely bolster earnings and return oil majors to a position of dominance.

“It’s a very exciting time,” Vigna said on Bloomberg TV Thursday. “We’re back to a concentrated market like we had in the 90s,” where the largest companies earned higher returns as the balance of power tips in their favour, he said.

The shutdown of the Forties pipeline which carries 450,000 barrels per day (b/d) of North Sea crude to refineries in Scotland was the main price support in Friday’s session, according to traders.

The pipeline’s operator, INEOS, declared force majeure on Forties on Thursday.  It is unsure when the pipeline will be back in operation.

The shutdown of the Forties pipeline was eclipsed by rising US production.  The International Energy Agency said that with US output nearing levels of Russia and Saudi Arabia, oil markets will likely move into a supply surplus in the first half of 2018.

On Friday, data from Baker Hughes showed the US oil rig count had fallen by four and now sits at 747.  This time last year, there were 510 oil rigs operational in the US.

In Canada, the oil rig count is up by 22 to 134.  At this time in 2016, there were 116 oil rigs in Canada.







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