Published: Sat, January 13, 2018
Business | By Max Garcia

Oil retreats from $70 ceiling on fading geopolitical risk premium

Oil retreats from $70 ceiling on fading geopolitical risk premium

US crude oil production is expected to hit 10 million bpd next month, behind only Russian Federation and Saudi Arabia. This week, Suhail al-Mazroui, energy minister to the United Arab Emirates, noted that global stockpiles are more than 100 million barrels above their five-year average.

U.S. crude oil production is expected to surpass 10 million barrels per day (bpd) next month, en route to an all-time record months ahead of previous forecasts, the U.S. Energy Information Administration said Tuesday. The EIA says it will account for two thirds, or 800,000 b/d of the 1.2 mb/d of oil production growth expected between December 2017 to December 2019.

As of December, Venezuela's crude oil production was roughly 1.8 MMBPD, the lowest level since February 2003, when most of Venezuela's oil production was shut-in during an oil workers' strike, Kallanish Energy learns.

"EIA expects Venezuela's production to continue to fall through the forecast period as the financial situation of the state-owned Petróleos de Venezuela (PDVSA) becomes more precarious", according to EIA/STEO. However, this expected economic growth could be curtailed by any number of events.

Oil prices hit multiyear highs on Thursday despite warnings that a 13% rally since early December was close to running its course. Two points of particular uncertainty are the US trade enforcement plans against China that Washington is expected to unveil later this month and the direction NAFTA negotiations will take. Brent touched $69.29 in late Tuesday trading, the highest since May 2015.

Oil retreats from $70 ceiling on fading geopolitical risk premium
Oil retreats from $70 ceiling on fading geopolitical risk premium

Data from the US Energy Information Administration (EIA) on Wednesday showed that crude inventories fell by nearly 5-million barrels to 419.5-million barrels in the week to January 5. The price of West Texas Intermediate crude in NY was $US62.67 a barrel, on Tuesday, the highest in since December 2014.

The price upturn began in June previous year, and now prices are nearing levels from late 2014.

Because US production increases will need to compete for market share in Asia, the difference between Brent and WTI prices is supported by cost differences to get there.

But Fatih Birol, head of the International Energy Agency, warned on Friday that while oil prices at $65 to $70 per barrel are good for oil producers now, there is a risk that such a level would encourage more oversupply from US shale drillers. These liquids are less valuable than gasoline and diesel to refiners and largely are destined to the export market, where they are sold relatively cheaply. Oil prices are up around 5% already in 2018.

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