U.S. oil production balancing oil prices

If it weren’t for U.S. oil, crude oil prices should have touched $100 a barrel.

As per a report from Barron’s, thanks to the heightened demand for oil, and reduced supplies from the Organization of the Petroleum Exporting Countries (OPEC), crude oil prices are likely to touch $60 before the end of this year.

Barron’s report has cited research from senior energy analyst Eric Lee, who had previously called for a bear market in oil when its prices was hovering above $100.

As noted by Barron’s, the decline in crude oil prices in recent weeks to just above $44 for Brent crude LCOc1, the international benchmark, has made Lee a short-term bull.

As per Lee’s projection, demand for crude oil is set to touch 97.3 million barrels a day in 2017, up from 96 million in 2016. The driving factor for this demand is likely to come from the emerging economies of India and China.

With an increase in demand and reduction in supply from OPEC countries of 0.7 million barrels a day, is likely to drive up prices before the year comes to a close.

The glut in the global oil pool started to recede after the first quarter, and as per Lee’s projection, the decline will accelerate through 2017.

On Friday, with rising U.S. inventories, oil prices settled almost 3% lower. However, an increase in OPEC exports to a 2017 high, has cast doubts on efforts to curb the global glut in the oil pool. As per Reuters’ data, OPEC production is at its 2017 peak.

As per Matt Smith, director of commodity research at Clipperdata, during last month, OPEC’s exports were 2 million barrels per day (bpd) higher than its equivalent in the previous year, June 2016. This is despite the extension of oil production cuts by OPEC by 1.8 million bpd.

In an astute observation Lee notes that oil speculators have largely ignored details of OPEC’s agreement, which ordered cuts to begin at the end of 2016 rather than when the accord was announced. This has allowed participants to ramp up production levels during negotiations, which amounts to oil production cuts being made from a higher base.

Lee goes on to add, continued oil production from the U.S. will keep oil prices from hurtling towards $100 a barrel, although U.S. oil is unlikely to prevent an upward move for the remainder of the year.

Once prices touch $60 a barrel, Lee expects them to largely remain flat while heading into 2018, with the supply side catching up with demand.

Barring significant political disruptions from oil producing countries, Lee does not expect the price of crude to go beyond $60.


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