Americas News
Monster Crude Draw Causes Prices to Skyrocket Despite Forecast that U.S. Production Will Match Saudi Arabia, Russia
One day after a persuasive argument was made that fundamentals aren't strong enough to support current crude prices, West Texas Intermediate on Tuesday skyrocketed by $1.23 to settle at a more than three year high of $62.96, and Brent reached $69.08, its highest level since May of 2015.
The remarkable gains were driven by the American Petroleum Institute claiming that domestic oil inventories dropped by 11.2 million barrels last week; if this figure is confirmed by the Energy Information Administration (EIA) on Wednesday, it will be the largest draw for this time of year since 1999 and nearly triple what had been estimated in a Bloomberg survey.
Carsten Fritsch, analyst at Commerzbank, noted that "In view of sharply falling U.S. crude oil stocks and record-high compliance with the production cuts by OPEC [the Organization of the Petroleum Exporting Countries], market participants are convinced that the market is continuing to tighten."
Not even the persistent threat of U.S. shale producers exceeding 10 million barrels per day (bpd) this year could dampen Tuesday's market performance, although the EIA on Tuesday forecast that U.S. output will be on the order of 10.8 million bpd, which puts it on par with Saudi Arabia and Russia - and that American output will grow even more in 2019, to 11 million bpd.
John Conti, acting administrator for the EIA, said in a statement, "Led by U.S. production, particularly in the Permian Basin, and new oil sands projects in Canada, non-OPEC production is forecast to continue growing through the end of 2019.
"We expect to see growth near 2.0 million bpd in 2018 and 1.3 million bpd in 2019."
So far, the analytical community that has repeatedly warned of crude over $60 galvanizing U.S. shale and ruining OPEC's plans to rebalance the market doesn't think the EIA's finding are any big deal: "Despite the EIA's forecast for record oil production this year and next year again, there's obviously still very healthy demand for crude," said Kyle Cooper, director of research at IAF Advisors.
Standard Chartered analysts said in a note, "We expect oil demand growth to outpace non-OPEC supply growth in both 2018 and 2019; in our view, the back of the Brent and WTI curves are both still underpriced [and] we do not think that prices below $65 per barrel are sustainable into the medium term."
If nothing else, Tuesday's market performance demonstrates just how quickly respected institutions such as Commerzbank can reverse opinion: 24 hours prior, it predicted that the price of oil would soon correct by at least 10 to 15 percent "because the current fundamentals are not justifying this kind of strength."
