Supply pact helps keep OPEC crude production steady

Oil Surplus Returns       Both OPEC and IEA forecasts suggest stockpiles will grow again in 1H                          
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The production numbers are so much higher than a year ago, so the market isn't getting freaked out; recent data is showing about 6-7 Bcf/d production growth year-on-year. That was also close to the previous day's high of $69.37 a barrel, which was the highest level since an intra-day spike in May 2015 and, before that, in December 2014. The global supply of oil exceeded demand by as many as 2 million barrels per day and inventories swelled.

At this consumption level, a dollar increase in crude price on a permanent basis will increase the oil import bill by roughly Rs 10,000 crore per annum.

Oil prices have surged more than 13 per cent since early December, and there are indications of overheating.

The West Texas Intermediate for February delivery increased 0.50 USA dollar to settle at 64.30 dollars a barrel on the New York Mercantile Exchange, while Brent crude for March delivery added 0.61 dollar to close at 69.87 dollars a barrel on the London ICE Futures Exchange. EIAs January Short-Term Energy Outlook forecasts Brent to average $60/b in 2018 and $61/b in 2019.

USA demand growth of 150,000 bpd was estimated for 2017, slightly lower than previous expectations.

USA crude stockpiles dropped to 419.5 million barrels last week, the lowest level since August 2015, according to the Energy Information Administration. During the last four weeks, motor gasoline product supplied averaged about 9.1 million barrels per day, up by an impressive 2.5% from the same period previous year. EIA expects global inventories to increase by about 0.2 million b/d in 2018 and by about 0.3 million b/d in 2019.

US output will continue to rise in 2019, surpassing 11 million bpd by the end of that year, the EIA report said. US crude oil production is expected to continue increasing in 2019 to an average of 10.8 million b/d. The EIA says it will account for two thirds, or 800,000 b/d of the 1.2 mb/d of oil production growth expected between December 2017 to December 2019.

Since the start of this financial year particularly from June 2017 onwards, Brent has been on a rise due to the geopolitical tension within Opec and supply disruption caused by the cyclonic activity in the US.

Global consumption of petroleum and other liquid fuels grew by 1.4 million b/d in 2017, reaching an average of 98.4 million b/d for the year. EIA estimates that, absent significant pipeline constraints, moving crude oil from Cushing, Oklahoma, to the U.S. Gulf Coast typically costs about $3.50/b.

Iranian Oil Minister Bijan Zangeneh said Tuesday that prices this year were supported in part by OPEC commitments, but also by demand strains from severe winter weather.

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