Oil prices up, but analysts concerned about increased US production
Oil prices rose in trading on Wednesday after the US Energy Information Administration reported a drop in US crude inventories and strong refining activity.
The EIA data showed US crude stocks fell for the sixth straight week, dropping by 1.8 million barrels for the week ending May 12. Analysts had anticipated a larger drop in inventories, but the EIA report lifted prices after the American Petroleum Institute reported a build in stocks on Tuesday.
Gasoline and distillate inventories also fell.
Brent crude was up by 87 cents to $52.52/barrel by 11:31 a.m. EDT and US light crude rose 71 cents to $49.37/barrel.
“The crude oil drawdown disappointed some, but the fairly large rise in refinery utilization bodes well for crude oil demand in the coming weeks,” John Kilduff, partner at energy hedge fund Again Capital LLC told Reuters.
Since the middle of 2016, US crude output has grown by 10 per cent to 9.3 million barrels per day (b/d) and is closing in on Russia and Saudi Arabia.
According to Matt Smith, director of commodity research at ClipperData, the US Gulf Coast led refinery activity higher. He told Reuters “Refinery runs over 750,000 bpd higher than year-ago levels for the U.S. has been enough to usher in a build – despite stronger imports. A triumvirate of draws for crude, gasoline and distillates is a supportive influence for prices.”
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OPEC members and non-members participating in the OPEC supply cut will meet next week in Vienna, Austria to decide if they will extend the production reductions of 1.8 million b/d. The agreement was to end in June, but Russia and Saudi Arabia say the cuts should be prolonged into March, 2018.
Some analysts are looking for deeper cuts to production.
So far, Kuwait, Iraq and Venezuela have publicly supported an extension to the pact. Kazakhstan is participating in the current cutback, but has said it will not likely be on board for an extension of the agreement as it expects its output to rise in the coming months.
Reuters reports Jeffries Bank said it is lowering its oil prices forecasts for the second half of 2017 to $59/barrel from $61/barrel due to increased US production.
As well, North Sea oil output has recently increased and is expected to rise by a net 400,000 b/d in the coming two years thanks to new projects and greater efficiencies.