December 16 2017

Crude oil rallies amid talk of OPEC production cut deal extension

December 16 2017, 04:54 | Clarence Walton

Oil Rises Nearly 1

Oil Rises Nearly 1

Improving global growth, especially in emerging economies and the eurozone, is also pushing up oil prices by increasing demand for energy, while the damage to USA shale output in the wake of Tropical Storm Harvey could also lift Brent. OPEC members have indicated they would be happier with an average price of $60 per barrel.

With so many hedge funds now long, the trade is starting to look crowded, and the balance of price risks has shifted to the downside for all the refined fuels.

She said this has put Brent crude prices within sight of the US$60 per bbl mark and thus reinforcing the research house "overweight" view on the sector.

BMO links the recent run-up in crude oil prices to lower-than-expected US oil production growth in the first half of 2017 but says it expects second half growth will be back on track.

Gasoline futures fell 2.22 cents, or 1.34%, to $1.6318 a gallon.

Brent, the global benchmark, was up $1.50, or 2.64%, at $58.36 a barrel, trading at its highest level this year.

Ed Morse, global head of commodities for Citigroup, remarked, "We're seeing more and more evidence that it's not the worldwide oil companies, it's not the independent oil companies that are lagging new investments, but it's OPEC countries lagging, particularly those five".

"This means crude drawdowns can also be expected as refineries around the world need to pick up the pace", she said.

A surge Monday in WTI futures pushed oil prices into a bull market, as they climbed by more than 20% from lows in June.

Oil prices were trading around their highest level in over two years, amid Turkey's threat to cut crude flows from Iraq's Kurdistan region following the independence referendum. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the US could at least keep oil prices steady around current levels in the second half of 2017. Rig counts in the USA appear to have peaked and the recent reductions in production of both crude oil and refined products in the wake of Hurricane Harvey and Irma have buoyed prices. Ed Morse, global head of commodities at the bank, told Bloomberg that several OPEC countries-Libya, Nigeria, Venezuela, Iran, and Iraq-might already be pumping at their maximum capacity. The EIA reported that production rose to 9.55 million barrels per day (bpd) last week, higher than before Hurricane Harvey hit the Texas Gulf Coast area.

North Sea oil producers seized on surging crude prices this week to hedge output, joining their United States shale oil peers in locking in a floor for future revenue.

"Commercial oil stocks in the OECD fell further in August and the difference to the latest five-year average has been reduced by 168 million barrels since the beginning of this year", OPEC said, in a Friday statement. The recovery in U.S. refinery demand after Hurricane Harvey also supported crude oil prices.

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