Americas News
US Crude Ends 2017 Above $60, But This Sets Stage For Shale/OPEC Clash, Say Analysts
Crude prices ended 2017 with a bang on Friday, with West Texas Intermediate closing above $60 for the first time in over two years, and Brent said to be supported by strong demand from China.
However, the strong close outs of the year herald what many experts say is the inevitable outcome of high prices: increased U.S. production in 2018, which will clash directly with the Organization of the Petroleum Exporting Countries' (OPEC) ongoing attempt via its extended output cutbacks to rebalance the market.
WTI rose 58 cents to $60.42 per barrel on Friday, its best closing price since June of 2015; Brent rose 76 cents to $66.92 per barrel.
Again, the Energy Information Administration data released on Thursday showing a drop in domestic oil production (to 9.75 million barrels per day last week from 9.79 million bpd the week before) was credited for WTI's strong performance, while traders boosted Brent prices on news that China has issued crude import quotas totaling 121.32 million tons for 44 companies in its first batch of allowances for 2018.
Although U.S. shale drillers are currently exhibiting restraint, speculation is rising that they will put more rigs into operation next year as oil strengthens: Gene McGillian, a market research manager at Tradition Energy, pointed out that "With that partially offsetting production cuts by OPEC and Russia, the market will have to get confirmation that global inventories will keep coming down.
"If we don't see that pattern continue then, we could see a significant correction."
Kim Kwangrae, a commodities analyst at Samsung Futures Inc., added, "The tug-of-war between OPEC and the U.S. will continue to pressure oil from trading above $60 a barrel in 2018; like we've seen this year, geopolitical risks will be the key factor going forward for oil to breach $60."
Some analysts think Friday's crude gains will evaporate sooner than later: "The current highs are unsustainable in the short-to-medium term, with prices likely to head back below $60 once we get past January," stated JBC Energy GmbH.
But while 2018 is shaping up to be a tumultuous year for crude, it could be that the U.S. plays a lesser role in creating chaos than some think: the Federal Reserve Bank of Dallas this week noted in its latest survey of 134 energy firms based in Texas, New Mexico, and Louisiana that prices above $60 per barrel are needed to see a significant uptick in activity.
Specifically, slightly more than half the survey's respondents expect the rig count to continue to climb six months from now, but nearly all said oil above $60 will be needed for a substantial increase.
Not everyone is fearful about shale's disruptive potential in 2018: earlier this week, Ashley Petersen, lead oil market analyst at Stratas Advisors, said, "We see U.S. supply continuing to grow next year but are less concerned about a sudden supply glut re-emerging, as rising drilling and completion costs will likely slow production growth."
