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Oil steadies as equities gain, but concern builds over supply

16 March 2018

Tran told Bloomberg, "we do think over the course of the year oil prices will likely march to the beat of its own drum - so from that perspective we do believe the backdrop for the oil market is actually looking quite constructive".

U.S. crude inventories probably expanded by 2.5 million barrels in the week through March 9, according to a Bloomberg survey before EIA data today. These cuts, coupled with increased production in the United States, indicate a loss of market share for OPEC.

The trend is worrying for OPEC.

The IEA's latest five-year outlook documented oil discoveries falling last year to a record low.

Oil markets remain volatile due to excess supply. Brent prices have averaged close to $67/bbl this year. Even so, the value of Brent crude oil is still averaging close to $67/bbl in 2018, which is about 20% higher than in the early part of past year. From there, the rally stalled, and USA shale began to take off again, pushing prices back down.

"Strong demand growth will further draw down inventories as we enter the second quarter and the summer driving season" begins, said Neil Beveridge, a senior analyst at Sanford C. Bernstein & Co. For example, if the rig count doubled by 2025, US tight oil could peak earlier at around 12 million BPD but would then decline more rapidly if the same total resource is extracted over the Outlook period.

OPEC is just getting around to acknowledging this fact.

Trump seeking to slap steep tariff on Chinese imports says report
Japanese Trade Minister Hiroshige Seko said he had expressed Japanese concern to Lighthizer and warned of major market disruption. The bloc says that it's a close ally of the US and therefore any import levies on national security grounds are unjustified.

LONDON-Oil prices were mixed Thursday morning, as investors weighed signs of growing global oil demand and surging U.S.shale production. The group revised down the need for its production by 200,000 bpd for 2018.

A spokesman for the energy ministry said that Saudi Arabia along with the OPEC and non-OPEC oil producers participating in a global supply cut agreement "remain committed to pursuing the common objective of restoring inventories back to their normal levels". "It should be noted that the overhang has been reduced by 289 mb from January 2017", OPEC wrote. In fact, the oil surplus only stood at 50 million barrels, while refined product supplies are actually in a deficit. This suggests that the OPEC cuts have had a huge impact. The surplus to the five-year averaged fell to 53 mb. The call on OPEC crude rises steadily to 32.6 mb/d in 2H18, 480 kb/d higher than current output.

While rivals are pumping more, OPEC´s production in February fell, according to the report.

Another metric looks more promising: days of forward cover.

The problem with this scenario, according to Tran, is "there's not that many companies on a global basis that can make final investment decisions for projects that are long lead time and slightly more expensive in a $52 price environment".

But on the positive side for oil prices, consumers soaked up large amounts of fuel. Cold weather in some parts of the northern hemisphere in January-February saw an increase in heating demand. The S&P 500 stock index rose 0.3 percent.

Oil steadies as equities gain, but concern builds over supply