Oil Rises On Strength of Strong Demand Reports, Smaller Than Anticipated U.S. Inventory Builds

Looming resumption of normal output in Libya and the North Sea may affect this week's gains. File Image / Pixabay

One day after a host of analysts predicted gloom and doom for the New Year via weakened demand for crude and rampant production, news on Thursday that demand in China is unusually strong coupled with falling crude stocks in the U.S. caused oil prices to edge up slightly.

West Texas Intermediate rose 20 cents to $59.84 per barrel and Brent settled up 28 cents at $66.72 per barrel; this week WTI broke above $60 per barrel for the first time since June 2015, while Brent breached $67 for the first time since May of that year.

Xinhua data released on Thursday showed strong import quotas for 2018, with China's crude inventories in November hitting a seven-year low of 26.15 million tonnes.

Equally encouraging to traders was data released by the Energy Information Administration showing that crude stocks fell 4.6 million barrels in the latest week, even though U.S. refining runs increased, pushing capacity use to 95.7 percent (the highest in December dating to 1998); altogether inventories excluding the nation's strategic reserve have declined more than 11 percent in the last year.

David Thompson, executive vice president at Powerhouse, remarked, "In the week past, strong demand for refined products, especially distillates, continued to incent refiners to process crude oil at increasing rates."

But it's questionable whether the optimism of traders will last much longer, as two crude shortages that have helped support prices this week are coming to an end.

Libya's Waha Oil company on Thursday said it will repair a crude pipeline blown up earlier this week within a "very few" days; an explosion south of the Es Sider terminal cut the country's output by 70,000 to 100,000 barrels per day and has been called a "terrorist attack" by Waha.

Also sure to cause worry in many quarters in the impending reopening of the Forties pipeline in the North Sea, which operator Ineos on Thursday said would resume normal flow around the New Year, several weeks ahead of schedule.

The company stated, "All restrictions on the flow of oil and gas from platforms feeding into the pipeline system have been fully lifted; all customers and control rooms have now been informed"; plus, an export schedule of Forties crude oil cargoes in February was sent out to cargo owners on Wednesday.

Earlier this week, John Kilduff, founding partner at Again Capital, echoed the sentiments of many colleagues when he warned that demand is a "question mark moving forward" and trouble could begin as early as next month "because there is a lot of supply ready to come back on the market."