Oil prices rise on strong China demand, signs of US output slowdown

Vincent Carr
July 17, 2017

Brent for September settlement slipped 7 USA cents to US$48.84 a barrel on the London-based ICE Futures Europe exchange.

Global oil prices rose to the highest level in almost two weeks after better-than-expected economic data from China boosted demand speculation amid signs that the pace of USA production may be slowing.

Technically, MCX crude oil price steadily moved higher as it recovered from two-week lows near Rs 2,820 to close the last week near Rs 3,000 level, higher by about 4.5 per cent for the period.

OECD oil inventories fell slightly in May by 6 million barrels but remain 266 million barrels above the five-year average. The kingdom was unable to play the role of a swing producer, the Opec's central bank of oil, in a global market transformed by the limitless shale oil reservoirs of West Texas, North Dakota and Oklahoma.

While OPEC-led cuts have offered prices some support, rising supplies from Nigeria and Libya, two OPEC states exempt from the pact, and increasing USA production have weighed on the market. Despite the recent week's rise in price, the oil is down more than 10 percent since the agreement. Iran, Algeria and Iraq also gamed the Opec deal by ramping up production during the two months between the negotiation of the Saudi-brokered pact and the year-end deadline for output cuts. However, the lack of progress from the first OPEC agreement to cut oil production has led the markets to question the OPEC's ability to send oil prices back up.

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On Monday, oil prices have recorded as much as $49 per barrel on reports of a sharp decline in U.S. crude inventories in the week that ended last July 7.

"The most pronounced inventory reduction in the U.S.in 10 months and the resulting decline in USA crude oil stocks to below the 500 million-barrel mark in the last reporting week have clearly prompted a shift in sentiment", said Carsten Fritsch, analyst at Commerzbank. A decline in global oil inventories has now begun.

Chinese refineries increased crude throughput in June to the second highest on record. This is the reason I accumulate Total at?42, Chevron at 102, Oxy at 58. The increasing numbers of operating rigs, as well as increasing production, have been raising concerns that the USA shale oil producers which were able to cut their production cost dramatically over the past years are now a low-priced global competitor and would continue to undermine the OPEC agreement to cut supplies. It is time to morph into an admittedly nervous oil bull.

Also S&P Global, it said that if the price of oil stays at below $50 per barrels through 2018, it would put oil majors' credit ratings at risk.

The cuts were envisaged for six months and extended for another three.

Other reports by BadHub

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