Strong China Demand Trumps Concern Of U.S. Production and Boosts Crude Prices

A recovery in China's crude imports in November from a one-year low was enough to trump concerns about escalating U.S. shale production on Friday, as traders propelled West Texas Intermediate upward by 67 cents to settle at $57.36 per barrel and Brent up $1.20 to end the session at $63.40.

Even the fact that U.S. crude still posted its biggest weekly loss in two months wasn't enough to dissuade analysts from offering optimistic near-term forecasts: "Even if you have no bullish view ... OPEC and Russia have taken away the risk to the downside," said Bjarne Schieldrop, chief commodities analyst with SEB Bank, in reference to the Organization of the Petroleum Exporting Countries extending its output cuts to the end of 2018 and Russia seemingly going along for the ride.

John Macaluso, an analyst at Tyche Capital Advisors, remarked, "We have good numbers out of China [and] a lot of the extra imports are not from Saudi Arabia: Iran, Russia and the U.S. are some of the countries picking up the slack."

Tamas Varga, analyst with PVM Oil Associates, opined, "Generally speaking, the market is looking more healthy than sick."

The optimism may seen questionable considering one of the biggest fears of analysts and many Middle Eastern energy ministers was that the OPEC cutback extension would escalate prices and encourage more U.S. production, thus replenishing the crude glut that caused the price meltdown to begin with.

And indeed this seems to be playing out, with data this week showing that U.S. crude output had risen 25,000 barrels per day (bpd) to 9.7 million bpd in the week to December 1, the highest production since the 1970s and close to the production levels of Russia and Saudi Arabia.

And the news that boosted Friday's market - China importing near-record levels of crude in November - also demonstrates the U.S.'s ability to fill market gaps: it exported 289,000 bpd of crude to Chinese shores last month, meaning producers continue to make inroads into the country two years after Congress lifted a 40-year ban on crude oil exports, and aided by the OPEC cuts.

Earlier this week, Baker Hughes data showing an increase in the U.S. rig count resulted in a more predictable reaction from traders, with crude prices dropping 1.5 percent and analysts complaining that the U.S. would continue to eat away at OPEC's hopes for balancing the market.