Oil prices sit at three-year highs as march to $70 slows

Andrew Cummings
January 13, 2018

Brent crude doubled in the past one year and touched Dollars 70 a barrel mark Thursday, the highest since December 2014.

If achieved, it would break previous records as higher petroleum prices trigger a drilling revival in shale fields, the Energy Information Administration's first short-term forecast for 2019 reveals.

Gasoline inventories rose by 4.1m barrels to near the top of the average range, while analysts expected a smaller 2.6m barrel increase.

That's even with a 2.4% rise in global demand this year and 1.7% in 2019, according to the EIA. Therein lies part of the challenge: Producers want to shrink oil inventories, but the market's price may have increased too quickly in response.

Oil producers may be enjoying oil prices at $65 to $70, but these price levels are likely to encourage even more oversupply from us shale, Fatih Birol, the Executive Director of the International Energy Agency (IEA), said at an industry event on Friday.

Brent crude futures LCOc1 traded 20 cents lower at $69.06 a barrel at 1129 GMT. Oil prices are up around 5% already in 2018.

David Madden, market analyst at CMC Markets UK, said: "WTI and Brent crude oil have sold off in the wake of the EIA report which showed yet another decline in oil stockpiles, while gasoline inventories increased".

Traders said relatively weak China December oil data had weighed on prices.

On Wednesday, the U.S. Energy Information Administration said crude inventories fell nearly 5 million barrels to 419.5 million barrels last week.

-While anti-government protests in Iran and the possibility of US imposing sanctions again on the country has helped the ongoing crude rally to three-year highs, analysts are cautious as further moves are likely to depend on whether USA shale production picks up because of the higher prices.

Most of the growth in USA output will come from the Permian basin, a huge shale region spanning western Texas and New Mexico. The EIA anticipates OPEC production to increase by 500,000 b/d in 2019 as it slowly returns to pre-agreement levels.

Most of the remaining growth will come from offshore wells in the federal waters of the Gulf of Mexico, with seven new projects expected to come online by the end of 2019, the agency said.

Crude oil production from the Organization of the Petroleum Exporting Countries (OPEC) averaged 32.5 million b/d in 2017, a decrease of 0.2 million b/d from 2016. The EIA is forecasting that the average price of gasoline for all of 2018 will be $2.57 a gallon, up from $2.42 a gallon in 2017. In both 2018 and 2019, EIA expects total global production to be slightly greater than global consumption, with US production increasing faster than production in any other country, contributing to modestinventory builds.

Trading volumes were higher than average, with a flurry of deals at about 10:00 a.m. EST as prices jumped.

That's bad news for the USA coal industry and Donald Trump ambitions to restore coal's fortunes. The head of Russian oil company Lukoil, Vagit Alekperov, meanwhile, said that if oil prices stay this high, the effort led by OPEC, but which includes Russia, will need to gradually come to an end.

"Coal's forecast generation share falls from 30% in 2017 to slightly lower than 30% in 2018 and 28% in 2019".

Other reports by iNewsToday