Daily Management Review

American oil leap frogs in production; the market hits the panic button


02/09/2017


The United States continues to actively build up oil reserves and is stepping up active drilling. This situation occurred thanks to stabilization of oil prices, which OPEC and other producers have achieved by limiting production. US production, on the other hand, is shooting for higher levels now. Already in the next year, America could reach a record of 1970, which, in turn, will have a significant pressure on oil prices.



Sergio Russo
Sergio Russo
On Wednesday, oil quotes have gone below $ 55 per barrel for the first time since mid-February. April futures for Brent went down to $ 54.46 on intercontinental stock exchange ICE in London (traded at a mark of $ 54.9 in the evening). At the same time, cost of a barrel exceeded $ 57 in the last week.
 
Oil went down thanks to report of American Petroleum Institute. According to its estimates, for the week ending 3 February, volume of stocks rose by 14.2 million barrels (almost 3%) and amounted to 503.6 million barrels, whereas previously predicted growth was only 2.5 million barrels.

«API brought up huge figures of oil stocks - commented Jeffrey Halley, a broker from OANDA. - This is the second largest growth rate in history."

Later on Wednesday the Energy Information Administration (EIA) of the US Department of Energy also published official data on stocks. The figures were somehow smaller - reserves increased by 13.8 million – but still quite impressive.

In addition to this, the quotes experienced huge pressure from data on the number of drilling rigs in the United States, published earlier this week by Baker Hughes (one of the world's leading oilfield services). During the reporting week ending 3 February, number of oil drilling in the United States increased by 17 units (up to 583 pieces), up to 116 units (24.84%), which is more than in the same period last year. Number of oil rigs in the US has been growing for more than 10 consecutive weeks.

The American oil industry is responding to stabilization of world prices, prompted by the oil freeze agreement between OPEC and other oil-producing countries.

The United States is clearly not going to stop. The forecast issued by the US Ministry of Energy on Tuesday said that US oil production will reach 9.53 million barrels per day in 2018, which is close to 1970 records.

Earlier it was reported that the US are actively increase production in the Gulf of Mexico. At the end of last year, the level reached 1.68 million barrels a day, that is, an historic high marked in February 2010 (the Deepwater Horizon accident occurred in the Gulf in April of the same year, resulting in one of the largest oil spills in history).

The growth in US production to the Ministry of Energy’s forecast levels can cause prices to fall below $ 50 per barrel, says Chief Specialist at CMC Markets market analyst in Sydney Ric Spooner, as quoted in Bloomberg on Wednesday.

Earlier States, or rather, their new president, Donald Trump, has already announced an intention to build its own production and upsize purchase of crude oil from Canada, thereby reducing dependence on supplies from OPEC countries.

In this scenario, the market may be oversaturated with unclaimed oil, which once again will lead to the supply - demand misbalance and will bring down quotes. In order to neutralize this effect, OPEC and other producers need to further restrict production, and it is difficult to say whether leaders of the world oil market are ready for this. 

source: bloomberg.com






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