Americas News
Crude Gains Accompany More Support for OPEC and Predictions It Will Exit Early From Cutback Deal
U.S. crude inventories dropping by 6.5 million barrels compared with expectations of only a 3.8 million drop was enough to cause oil to rise on Wednesday after a few flat days of trading: West Texas Intermediate settled up 53 cents to $58.09 per barrel (the highest settlement in over two weeks), and Brent climbed $1.23 to $64.46.
The rise was also said to be helped by the continued repairs to Britain's Forties pipeline in the North Sea, which was shut down on December 11 and will likely remain inoperative for another few weeks.
As far as Goldman Sachs Group Inc. is concerned, inventories on a global scale will continue to shrink through the second quarter of 2018, causing the market to rebalance by mid-year - and this, the bank stated on Wednesday, will speed the Organization of the Petroleum Exporting Countries' (OPEC) exit from its production cuts.
Specifically, Goldman bank analysts including Jeffrey Currie wrote in a note that "The oil rebalancing continued its progress through November; global inventories will have re-balanced by mid-2018, leading to a gradual exit from the cuts."
However, Goldman maintained its rather conservative forecast for Brent at $62 per barrel.
Once more, market gains seem to inspire experts to praise OPEC and its initiatives, a case in point being David Lennox, resource analyst at Fat Prophets, who told Bloomberg that not only did OPEC agree to extend its output cuts to the end of the next year, "we're starting to see a very good track record of OPEC complying with that particular target they've set upon themselves.
"When you dd those two factors together, the market is now quite comfortable that OPEC's going to be able to control itself and then in that way control at least some part of the supply equation when it comes to oil in 2018."
Even concern over more production from U.S. shale companies spoiling upbeat 2018 forecasts was downplayed: Hans van Cleef, a senior energy economist at ABN Amro, believes shale will increase by 700,000 to 800,000 barrels per day and no more due to rising production and financing costs.
He added, "The overall U.S. production number has been increasing, but if you look at separate basins like the Bakken, they have struggled to increase production"; ABN precicts Brent will average $70 next year.
As for demand, Abhishek Deshpande, head of oil markets research at JPMorgan Chase, noted that "We have in our assumptions taken very high levels of growth for the U.S., [and] despite that growth, if demand growth were not to surprise to the downside then we are quite comfortable in saying markets will be well balanced given OPEC's continued support of cuts into 2018."
So far the only voice this week refusing to be swayed by OPEC rhetoric was the Federal Reserve Bank of Dallas, which spent time crunching numbers and concluded that only half of the decline in oil inventories OPEC has bragged about causing due to its cutbacks represents actual inventory draws, and that stored oil such as the inventories in China have actually grown over the past year.
