Waning risk premium, more U.S. production pushes oil prices lower

Gladys Abbott
November 11, 2017

The EIA also said crude stocks increased by 2.2 million barrels, shocking the market after analysts polled by Reuters had forecast a 2.9 million-barrel draw and industry group the American Petroleum Institute on Tuesday reported a decline of 1.6 million barrel.

Brent crude oil was up 20 cents at $63.69 a barrel by 1120 GMT.

West Texas Intermediate, the US benchmark for the price of oil, was down 0.33 percent to $57.01 per barrel. Still, traders expressed caution that the oil price rally may have run its course after pushing up Brent more than 40 percent since July.

"Prices may have reached a short-term peak", said Fawad Razaqzada, analyst at futures brokerage Forex.com.

Oil prices may be approaching the point at which shale oil producers in the United States kick into overdrive, undermining an approach by the Organization of Petroleum Exporting Countries to correct an oversupplied market with coordinated production cuts.

There are also expectations in the market that OPEC's next meeting on November 30 will agree to extend cuts beyond the current expiry date in March 2018.

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Crude was down slightly on Friday as expectations that OPEC and other producers will extend their production cut agreement were offset by USA drillers adding the most oil rigs in a week since June, indicating output will continue to grow.

"With the OPEC/non-OPEC deal extension beyond March 2018 a certainty, prices may become stronger and temporarily reach the $65-$70 per barrel range in 2018", said energy consultancy FGE.

"Market participants expect OPEC to extend the production cuts beyond March 2018 and stocks to decline further", analysts at Commerzbank said, noting, however, that "the higher price level should lead to a further rise in USA shale oil production".

The U.S. Energy Information Administration (EIA) said in a report that U.S. crude production rose to 9.620 million barrels per day during the week of November 3, the highest weekly output on record according to federal energy data going back to 1983. Texas issued 997 oil and gas drilling permits last month, up almost 17 percent from a year earlier.

Key for the last weeks of 2017 is whether traders remain confident about their huge bets on further price rises, or if they sell out, satisfied with recent strong gains.

"It doesn't matter how bullish the fundamentals are ... when an asset goes vertical there is always room for a pullback and consolidation of recent price moves".

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