Oil prices rise on reduced US production

Oil prices
Oil prices rose in trading on Wednesday, despite data from the US Energy Information Administration showing an increase in US crude stocks. Chevron photo.

Oil prices up despite increase in US crude stocks

Oil prices rose above the $47/barrel mark on Wednesday despite data from the US Energy Information Administration showing an increase in crude stocks.

Brent futures settled up 66 cents to $47.31/barrel and US WTI was up 50 cents, landing at $44.74/barrel.

Alberta TogetherInvestors were encouraged by a small decline in US production last week.  According to the EIA, US crude stocks rose by 118,000 barrels in the week ending June 23 and US production dropped by 100,000 barrels per day (b/d) to 9.3 million b/d.

“Most interesting thing is crude oil production was down … which is a significant decline given the increases in previous weeks,” Andrew Lipow, president of Lipow Oil Associates in Houston, told Reuters.

Lipow added the drop in production was likely due to Tropical Storm Cindy that impacted some production in the Gulf of Mexico last week.

The drop in US output came one week after the production reached almost 9.4 million b/d, the highest since August 2015.

Both Brent and WTI reached their highest since June 19 and are on track for their fifth straight day of gains for the first time since mid May.  Both contracts rose about 5 per cent since June 21 when Brent fell to a seven-month low of $44.35 and US WTI dropped to a 10-month low of $42.05.

According to Reuters, some analysts say the recent sell-off was overdone.

Ian Taylor, head of Vitol, said he expects Brent to stay in the $40-$55/barrel range for the coming few quarters as higher US output hinders a rebalancing of the market.

Meanwhile, analysts at JBC Energy said in a report that they see room for oil prices to recover.

“While the physical crude market remains steady at best, it is worth noting there is now significant room for speculative support for prices to develop if a catalyst were to emerge,” JBC said.

The stubborn global crude glut continues despite OPEC’s supply cut agreement. ¬†Participants in the deal said they are not expecting to alter the pact, but they are expected to meet in Russia next month where they may discuss further steps to balance the market.

Ted Morton
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