Oil prices high on expectations of U.S. inventory drains

The world’s most expensive oil

To stabilize the oil market and stop prices from continuing to fall, a change in strategy was needed and many producers cut their production.

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

U.S. West Texas Intermediate (WTI) crude futures settled at US$63.57 a barrel, up 61 cents, or 1 per cent, their highest settlement since December of 2014.

Also impacting prices is an increase in Asian demand for crude oil and petroleum products.

But the US refining sector is running near capacity, turning oil into a growing supply of gasoline, diesel and heating oil. Although more infrastructure to export crude oil has been recently built, United States exporters must still use smaller, less-economic vessels or complex shipping arrangements, which add to costs. India imported around 4.2 million barrels per day (bpd) of crude in 2017, according to trade flow data in Thomson Reuters Eikon.

USA crude oil production is expected to hit 10 million bpd next month, behind only Russian Federation and Saudi Arabia. Regional summer price spikes can not be precisely predicted.The agency expects gasoline demand in 2018 to total about 9.3 million barrels a day this year, a level that would surpass all-time records set last year.

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Traders are watching the surplus on the five-year average in crude oil inventories for signs of balance. OPEC, along with non-members including Russian Federation, have extended through the end of this year a deal to cut supply by 1.8 million bpd. EIA expects consumption growth will average 1.7 million b/d in 2018 and 1.6 million b/d in 2019, driven by the countries outside of the Organization for Economic Cooperation and Development (OECD). That would be like if Saudi Arabia, or Russian Federation or the United States stopped producing oil completely.

Oil prices fell on Friday after hitting a three-year high of more than $70 a barrel the previous day, but they were still on track to post a fourth straight week of gains.

EIA expects OPEC crude oil output will rise by an additional 0.3 MMBPD in 2019 as crude oil production slowly returns to pre-agreement levels. While India's oil demand may have disappointed by its 2017 demand growth-which was the slowest pace in four years-it was due to a fuel tax the government imposed to slow growth to a modest 2.3%.

When Russia and Saudi Arabia and its OPEC allies began limiting output in January 2017, their main goal was not necessarily to increase oil prices above $70 or even $60 per barrel, but to reduce global oil inventories.

Worldwide, the EIA sees oil consumption rising by about 1.7 mb/d in both 2018 and 2019, led by stronger demand from China and India.

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