Oil prices stable on healthy demand

17 March, 2018, 02:22 | Author: Mable Gonzales
  • KazMunayGas kazakhstan workers maintenance oil field reuters

OPEC for the first time expects new oil supplies from the United States and other producers to exceed growth in demand this year.

This has been somewhat offset by surging USA crude production.

Read: Is OPEC moving the goalposts for the oil market?

Crude has struggled since hitting a three-year high in January.

The statistical agency says world oil demand this year will increase 1.5 million barrels per day this year. However, the group warned that recent signs of protectionism from the US could hamper economic growth forecasts worldwide and in turn, hit trade flows and oil demand.

OPEC and its allies are strictly sticking to the agreement of oil production ceiling to bring the market back to balance.

The world's biggest oil producers late last year agreed on a nine-month extension of an existing deal curbing production throughout this year to shrink stockpiles and keep prices above $60 per barrel but the recent development may force the price to dip.

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However, longer-term factors centred mostly on soaring United States production kept markets wary.

That said, gains were limited by the Organization of the Petroleum Exporting Countries' (OPEC) projection that supply will overtake demand this year.

Saudi Arabia remains committed to OPEC's objective of "restoring inventories to their normal levels", the kingdom said earlier this week. USA output climbed by 12,000 barrels to 10.381 million barrels a day last week, the highest in weekly data going back to 1983, according to the Energy Information Administration. The discount of April contracts to May widened to 6 cents as growing supply weighed on the value of oil for prompt delivery. West Texas Intermediate (WTI) crude futures were up 1 cent at $60.97 a barrel. Brent is down 0.5 per cent for the week.

"Contango and backwardation are both a fundamentally physical signal in terms of surplus, but they are also strongly impacted by changes in speculative positions", SEB head of commodity strategy Bjarne Schieldrop said.

But speaking with CNBC during the CERAWeek 2018 conference held in Houston, Mohammad Barkindo, secretary general, OPEC, said there was no need to fear U.S. shale oil revolution. The move could have implications for U.S. sanctions on Iran, which could impact the latter's oil industry and exports, Facts Global Energy and Royal Bank of Canada warned.

It might not be all doom and gloom, even with the beginnings of an inventory build.

"This is a range-bound market for the moment", Rob Haworth, who helps oversee $151 billion in assets at U.S. Bank Wealth Management in Seattle, said by telephone. Explosive growth in the USA and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico.

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