Oil prices up on surprise drop in US production, US crude stocks
On Thursday, oil prices reached their highest levels since 2014 as the global crude market continued to tighten and OPEC pact participants said they would carry on with their plan to cut output.
By 12:57 p.m. EST, Brent crude was up 60 cents to $69.80/barrel, just shy of the session high of $69.88/barrel. US WTI rose by 96 cents to $64.53/barrel. At one point during the day, WTI hit $64.77, the highest since December 2014.
The Canadian Crude Index rose 62 cents to $41.29/barrel.
“The steady, if not rapid, decline in US crude oil inventories from persistently high refinery demand and elevated exports has firmly registered with the market,” John Kilduff, partner at Again Capital LLC told Reuters.
Weekly data from the US Energy Information Administration showed US crude stocks fell by almost 5 million barrels to 419.5 million barrels in the week ending Jan. 5.
As well, cold weather that blanketed many parts of the US resulted in a drop in US crude production by 290,000 barrels per day (b/d) to 9.5 million b/d.
The decline in US production is expected to be short-lived and analysts are expecting US production to top 10 million b/d soon.
Reuters reports the decline in US crude stocks is driving the market.
“(US) crude oil inventories are at their lowest level since August 2015,” PVM Oil Associates analyst Tamas Varga told Reuters. “OPEC is edging ever closer to its desired target of reducing OECD industrial stocks to the five-year average.”
UAE oil minister Suhail al-Mazrouei, who is also the current OPEC president, said on Thursday that he expects the oil market to return to balance in 2018. He added OPEC is committed to its supply cut agreement until the end of this year.
The OPEC-led production cuts have helped reduce global crude inventories and boost oil prices.
Despite the optimism, Reuters reports downward pressure emerged in the physical market. This week, Iran and Iraq cut prices to remain competitive.
As well, fuel inventories in Asia and the US were ample. Average refinery profit margins at the Singapore oil trading hub fell to below $6/barrel, the lowest level in five years.
“Markets are getting a bit fatigued and a healthy correction could be on the cards,” Stephen Innes, head of trading for Asia/Pacific at futures brokerage Oanda told Reuters.