Oil prices down on IEA forecast of reduced 2018 crude demand
Oil prices fell by around one per cent on Thursday, despite data from the US Energy Information Administration showing a larger-than-expected drop in US crude stocks and a decline in weekly production.
According to Reuters, a report by the International Energy Agency which shows a lower demand for crude next year put pressure on the market.
Benchmark Brent fell by 56 cents to $56.38/barrel and US WTI dropped 62 cents to $50.68/barrel by 4:49 p.m. EDT. Western Canadian Select crude prices rose slightly, up 6 cents to $40.20/barrel.
According to data from the US EIA, crude stocks in the United States fell by 2.7 million barrels last week, higher than analysts’ expectations of a drop of 2 million barrels.
On Thursday, the IEA forecast demand for OPEC crude to be 32.5 million barrels per day (b/d) in 2018, about 150,000 b/d less than the cartel pumped last month.
“This means OPEC must deepen its production cuts to finish its job of bringing oil stocks back to the five-year average,” Carsten Fritsch of Commerzbank told Reuters.
As well, US crude inventories remain 13 per cent above five-year averages, despite OPEC’s efforts to tackle the global glut of crude.
A number of traders expect OPEC to extend its supply cut pact beyond its current end-date of March 2018.
“There is little doubt that leading producers have re-committed to do whatever it takes to underpin the market,” Reuters reports the IEA said in a report on Thursday.
Increasing US production is impacting the global crude market as American crude producers push more crude into world markets, undermining OPEC’s efforts. US exports did fall last week to 1.27 million b/d, but for the first time ever, US exports have exceeded 1 million b/d for three straight weeks.
Some traders believe the US will inevitably reach its export capacity, but that has not happened as of yet.
“Additional U.S. supplies will weigh on Brent prices, and this will also encourage more production in the U.S.,” Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics told Reuters.
Many analysts predict Brent to remain between $50 and $60/barrel as long as global markets remain in balance.
“Our updated global supply-demand balance … shows peak stock draws in 3Q17,” Goldman Sachs said in a note to clients.
Goldman Sachs believes oil supply and demand fundamentals mean Brent will average $58/barrel in 2018.
