BAGHDAD: Oil prices remained range bound with minimal volatility and comfortably above the $60/b mark during November ’17 and during the first two weeks of December ’17 following the extension to the ongoing oil production cut agreement until the end of 2018. An oil pipeline shutdown in North Sea for repairs and maintenance after a leak also exerted upward pressure on Brent crude prices as the pipeline carries around 0.45 mb/d of Forties crude from the North Sea.
The pipeline carries the biggest of the five North Sea crude oil streams and according to reports, it would take several weeks for the repair work to reach completion, and for the pipeline to come back online. Oil price support also came after OPEC chief said that the ongoing output cut pact is pushing for a faster rebalancing of the oil market as inventory glut declined to 130 million barrels above the 5-year average. This also triggered talks of an exit strategy to the pact but the OPEC chief said that the producers are working on a continuity strategy for adjusting supply beyond the existing agreement that runs until the end of 2018. He added that oil fundamentals continue to remain strong, and improving global economic growth would support higher oil demand in the future. However, Kuwait’s oil minister said that the producers may end their production cuts before 2019 if the market rebalances by June ’18, highlighting the pressure from Russia to end the pact. On the other hand, energy ministers of UAE and Iraq said it was too early to speculate an exit strategy, and that OPEC plans to discuss this in its June ’18 meeting.
OEPC supply, IEA lowered the forecast for 2017 from an expected growth of 0.7 mb/d in the previous report to 0.6 mb/d in the latest report. However, the agency raised supply forecast for 2018 by 0.2 mb/d to an expected growth of 1.6 mb/d primarily on the back of US shale producers also highlighting their flexibility in increasing output when prices are high. In addition, a pickup in US drilling activity and well completion rates would imply higher supply in the coming months. On a positive note, IEA forecasted a surplus global supply of 200 tb/d during 1H-’18 that would revert to a deficit of 200 tb/d during 2H’18, resulting in a closely balanced market by year end. Crude prices continued to surge during November ’17 and December ’17 following extension to the ongoing output cut agreement between OPEC and non-OPEC producers further supported by reports of faster rebalancing in the oil market. Spot crude prices remained comfortably above the $60/barrel mark for most of the November ’17 and in the first two weeks of December ’17 after reaching a daily peak of $62.07/barrel in the first week of November ’17, the highest level since June ’15. Average Brent crude prices during November ’17 reached the highest level in 36 months to $62.6/barrel recording a month-onmonth increase of 9.3 percent while average OPEC crude reached the highest level in 30-months to $60.74/barrel, an increase of 9.4 percent as compared to average prices in October ’17. Meanwhile, EIA in its weekly inventory report for the week ended Dec 8, 2017 reported an inventory draw of 5.1 million barrels to reach 443 million barrels, a seasonal average level. API also reported crude stock decline of 7.4 million barrels for the week ended Dec 8, 2017 to reach 444.4 million barrels on the back of declining imports. This was the second consecutive week of inventory draw after API reported a 5.5 million drop in the previous week, although gasoline inventory saw a massive build of 9.2 million barrels during the same week. However, the enthusiasm from the EIA’s report was dampened by gasoline inventories that rose once again by 5.7 million barrels as refineries produced at the rate of 10.1 mb/d of gasoline, up from 9.8 mb/d during the previous week.
