Crude oil prices rose by more than 1% on Wednesday, backed by the expectation that the agreement reached by the Organization of Petroleum Exporting Countries (OPEC) could stabilize the markets. Also, the investors are positive that the US-China trade tensions may be resolved soon and end the trade war between the two largest economic powers.
The futures on US crude oil WTI with delivery in January rose by 1.12% to 52.23 USD per barrel. The Brent variety recorded a growth of 1.06% to 60.84 USD per barrel.
According to traders, the upward movement of the oil prices is currently backed by Libya’s export problems, where local militias took control of the largest oilfield El Sharara.
The positive mood on Wednesday is also the result of the growth in Asian stock markets after the US President Donald Trump said in an interview that his administration conducts trade talks with China to end the trade conflict.
Crude oil price outlook
The key news for oil markets in recent days has been the agreement reached by OPEC and Russia to reduce supplies by 1.2 million barrels per day.
“OPEC’s production constraints will stabilize the market”, according to an analysis of ANZ bank.
The crude oil has lost about a third of its value since early October until the conclusion of the OPEC agreement in the first week of December.
Some analysts, however, warn that the deal may not have the effect, which OPEC hopes.
Fereidun Fesharaki, Chairman of the energy company FGE, believes that supply cuts will be “insufficient to balance the markets by the end of the first quarter”. The FGE expects Brent’s prices to move around the levels of 55-60 USD per barrel, while the WTI prices to fell by 5-10 USD per barrel.
The US Energy Information Administration (EIA) cuts its 2018 and 2019 forecasts for WTI and Brent crude prices and hikes its domestic production outlook for next year. According to the latest EIA monthly report, the WTI price 2018 is now expected to average 65.18 USD per barrel, down by 2.4% from its November forecast, and cuts its outlook for the 2019 average WTI price by 16.4% to 54.19 USD per barrel. For Brent, the EIA lowers its forecast by 2.3% to 71.30 USD per barrel in 2018 and by 15.2% to 61 USD per barrel in 2019.
Despite dramatic slides in the oil market, some forecasters remain positive on prices and demand going into 2019. A year ahead outlook report from Bank of America Merrill Lynch expects Brent crude to regain its recent losses in 2019 and settle at 70 USD per barrel. But amid mounting global uncertainty on everything from trade and monetary policy to politics, that forecast is far from consensus.
Crude oil production
The big problem, however, remains the record yield in the US, which reaches 11.7 million barrels per day. The US is expected to send the year as the world’s largest oil producer after Russia and Saudi Arabia on an average annual basis. The Energy Information Administration (EIA) said the country’s average annual yield would probably be 10.88 million barrels per day.
The increase in world production in 2018 will be 1.53 million barrels per day according to the EIA, and production is expected next year to reach an unprecedented 12.06 million barrels per day.
Meanwhile, yesterday Libya’s National Oil Co (NOC) declares force majeure on exports from the El Sharara oilfield after the facility was shut down by local militia. NOC says the shutdown would result in a production loss of 315,000 barrels per day at the site and an additional loss of 73,000 barrels per day at the El Feel oilfield because of the latter’s dependence on Sharara for electricity supply. Before the force majeure, Libya had been producing up to 1.3 million barrels per day, which is its highest level since 2013.
Saudi Arabia could reduce its daily crude oil shipments abroad by as much as 1 million barrels next month. The move would be motivated by weaker demand due to seasonal patterns in consumption and Saudi Arabia’s commitment to the new production cut agreed last week in Vienna. In total, Riyadh will likely export an average 7.3 million barrels per day in January. This compares with less than 8 million barrels per day this month, also a decline from November, when the Kingdom exported 8.3 million barrels per day.