Oil toys with $62 amid Iranian friction, U.S. drilling pullback

Darnell Taylor
January 12, 2018

Supply reports this week from industry group, American Petroleum Institute and the USA government's Energy Information Administration, are expected to show that U.S. crude stocks fell by 4.1 million barrels, an eighth week of decline.

USA crude inventories fell 4.9 million barrels last week, more than the 3.9-million decline forecast, but bigger-than-expected builds in gasoline and fuel stocks offset that drawdown, the Energy Information Administration reported.

Oil prices continued to climb to fresh three year highs Wednesday, boosted by declining US crude stockpiles and ongoing geopolitical risk. According to the Energy Information Administration, crude oil product could hit 9.9 million barrels per day in 2018, which surpasses the prior high reached in 1970 of 9.6 million barrels per day.

Despite this, USA production C-OUT-T-EIA is expected soon to rise above 10 million barrels per day, largely thanks to soaring output from shale drillers.

USA crude futures rose 61 cents, or 0.97%, to $63.57 a barrel on the New York Mercantile Exchange - the highest settlement since December 9, 2014.

Oil extended gains above $62 (R766.95) a barrel before USA government data forecast to show crude stockpiles declined for an eighth week and as political tensions kept on simmering in Iran, Opec's third-biggest producer.

Brent for March settlement added 13 cents, or 0.2%, to $67.75 a barrel on the London-based ICE Futures Europe exchange. OPEC's members aren't keen on Brent prices above $60 a barrel because of the potential for more shale output, Iran's Oil Minister Bijan Namdar Zanganeh said, according to the ministry's news service Shana.

"After prices were boosted by OPEC's output curbs in 2017, the U.S. President has shifted the focus to geopolitical risks, with his pursuit of sanctions on Iran and North Korea potentially having significant consequences", Bloomberg reports, citing a Citibank report.

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Vijay Valecha, chief market analyst at Century Financial Brokers, said the major reasons behind oil's recent rally is the extension of the OPEC agreement and the lowest level of crude inventories.

Oil prices have recovered from the lows of 2015, but there is a reason to believe 2018 could bring another steep collapse in the price.

OPEC and allies, including Russian Federation, are keeping supply limits in place in 2018, a second year of restraint, to reduce a price-denting glut of oil held in inventories.

Royal Dutch Shell shares were 0.66% higher at £2,586 while BP shares gained 0.57% to £535.50, in the UK. However, it is unclear whether or not that statement accurately reflects the state of continued tensions over government policy in Iran.

Conoco and BP declined to comment on the action. The five-year plan for 2019-2024 would replace the Obama-era plan for 2017-2022, and it would include 47 possible auctions that encompass more than 90 percent of the USA outer continental shelf.

"The price increase will continue, but it will become slower".

New York City's five pension funds hold $5 billion in the securities of over 190 fossil fuel companies.

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