Crude falls back after U.S. oil producers up game

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Prices had closed at a fresh three-year high Thursday, on the back of declining US crude stockpiles and perceived geopolitical risk to supply because of antigovernment protests in Iran.

Analysis by research firm Rystad Energy has found surging shale oil output could ramp up U.S. crude production by 10% this year, bringing the country's total oil output to nearly 11 million barrels per day.

OPEC does not officially set a target price for crude, but reportedly in February a year ago its biggest producer, Saudi Arabia, was aiming for a $60 barrel.

Week over week, US crude oil exports rose by 265,000 barrels a day last week and USA production increased by 28,000 barrels a day to 9.78 million.

"In our view, if the brent price averages around $60/bbl in FY18, inflationary pressure will rise, but will still be manageable".

According to the report, E&P companies would be aiming for profitable growth within existing oil acreage and cash flow, with improvement favoring companies with the greatest exposure to the best acreage and producers in the Permian Basin leading the way.

Meanwhile, a major winter storm this week helped support prices for crude and products, on worries that freezing temperatures could affect refinery infrastructure and lead to a spike in demand for materials such as diesel and heating oil.

Analysts at TAC Energy said oil's move lower "looks like a natural correction of the ongoing bull market". At its November meeting, the cartel agreed to extend its production ceiling to the end of 2018.

Crude oil futures extended strong recent gains Thursday morning after an industry survey showing another significant drop in USA inventories.

But in doing so, the organisation risks tightening the market too much, sending prices sharply higher and encouraging a faster-than-expected acceleration in production from USA shale producers. There is also concern that Russian Federation will double-cross the market and not cap its production as promised.

The alliance between Opec, Russia and other large producers to remove 1.8m b/d from the market since last January has had the biggest impact on draining bloated oil inventories. Supported by the global inventory drawdown and geopolitical woes, however, oil prices rose steadily in the fourth quarter of 2017 to end the year at above $60 per barrel WTI and $66 per barrel Brent.

While there is a risk they may take profits after recent gains, potentially pressuring the market if funds sell out of positions, there are reasons to suspect they will not be easily dislodged. A boost in exports from Iraq's south, the outlet for most of its crude, to a record 3.55 million bpd in December, offset relatively low shipments from the north, the survey found.

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