Oil Jumps as Surprise US Supply Drop Dispels Shale Boom Fears

Gladys Abbott
February 25, 2018

While the markets debated the role of the United States in the global oil production previous year, the unexpected rise in USA crude did not prevent oil prices from recovering fully.

The prestigious Award, which is presented annually by the U.K.'s Energy Institute and Gulf Intelligence, is also in recognition of the leadership displayed by H.E. Al-Falih in guiding some 20 producing countries from around the world to find common goal in cooperation to reach over 100% compliance with cuts and extend the oil supply pact for a second year through to the end of 2018.

USA oil production last week was steady at 10.27 million barrels per day, a record level if confirmed by monthly figures.

On Thursday, oil price jumped after the U.S. Energy Information Administration reported an unexpected drop in crude stockpiles.

Energy stocks in Japan saw sharper gains, with oil producer Inpex trading higher by 2.55 percent and Cosmo Energy gaining 4.59 percent.

The drop at Cushing was because prompt crude prices were higher than forward prices, discouraging storage as it makes more sense to liquidate on-hand inventories.

The Organization of the Petroleum Exporting Countries and allies is expected to cut oil production. Prices had rallied in early 2018 and reached US$71.28 on January 25, the highest since December 2014. Thursday's EIA data showed exports of USA crude jumped to just above 2 million bpd, close to a record 2.1 million hit in October.

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"The U.S.is pumping out a record amount of oil", said Naeem Aslam, chief market analyst at Think Markets UK Ltd. USA crude was up 8 cents to $62.85.

"We see more downside for oil, as the sentiment cycle deflates and strong shale output growth challenges the market tightening narrative", said Norbert Ruecker, head of macro and commodity research at Julius Baer.

But analysts said oil markets were still generally well supported due to rising demand for crude and production restraint led by the Organization of the Petroleum Exporting Countries and Russian Federation.

Analysts attributed the surprise draw in part to a decline in crude imports.

"Weekly EIA data was particularly supportive to WTI considering US and Cushing draws, a boost in crude exports above 2 million bpd and flat crude production", said Anthony Headrick, energy market analyst at CHS Hedging LLC in Inver Grove Heights, Minnesota. A stronger dollar can make oil and other commodities denominated in the United States currency more expensive for other currency holders.

Total U.S. crude oil imports for the week ending February 9 averaged 7.9 million barrels per day, down about 4,000 bpd from the previous week.

OPEC wants to reduce inventories held by industrialized nations to their five-year average and is getting closer to that goal.

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