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Global oil market continues to search for balance

Brent crude was priced above US$64 with WTI still holding above US$60 a barrel.
oil and gas operations
This week the oil price hit its lowest point in the year to date

After a rough week on the global stock markets, commodities saw a decline, and the dollar strengthened.

The big sell off was across all stocks and many market watchers are hoping this is just a correction.

In early trading on Friday, Brent crude was priced above US$64 with WTI still holding above US$60 a barrel.

Crude sees lowest point this year

The oil price hit its lowest point this year and American inventories were higher last week. Both benchmarks are down more than 9 percent since their highs last month.

The market is nervous as it watches the upward trend of US production.

Latest figures from the Energy Information Administration said that American production had reached 10.25 million barrels a day, with expectation for 11 million to come.

This is the first time since 1970 that US oil production was above 10 million barrels a day.

US emergency reserves could be sold off

The US has also hinted it might sell off half of its emergency reserves to help raise money, a move critics question as unwise, given the energy security role of the emergency reserves.

The EIA has raised its crude price forecast by US$3 a barrel for 2018 and expects the global supply and demand balance to be unchanged in 2019.

OPEC and friends gave US producers a green light

The concerted production cuts by OPEC and friends have added strength to the market in the last year, but this in turn gave US producers a green light to restart production.

While key OPEC players have said that rising demand will absorb any increase in non-OPEC production, the market is not so sure. John Kilduff, founding partner of the energy hedge fund Again Capital, says he fears this sell-off will continue.

Speaking on CNBC this week, he said the supply dynamics were against the market, fearing a fall of WTI to the mid-fifties. 

WTI producers should remain competitive

This is not the worst prediction for the future of WTI so producers should still be competitive at this price and it may ultimately make many shale players re-think their financials.

Kilduff cautioned on the relationship of a rising dollar that is also impacting the crude price right now.

Standard Chartered Bank says they expect global oil demand growth for 2018 to be more than 1.6 million barrels a day.

Iran plans to increase output

Iran has indicated it intends to increase oil production in the next four years, but the country’s oil minister, Bijan Namdar Zanganeh told reporters this week that his country could quickly add 100,000 barrels a day extra if OPEC and non-OPEC conclude the production cut agreement.

Zanganeh has been supportive of the current agreement as Iran’s production was capped at 3.8 million barrels a day throughout the deal and he said the country has exercised “self-restraint” in its production to adhere to the agreement.

The CEO of Russian energy company Gazprom, Alexander Dyukov said he hoped that countries would soon look to increase oil production rather than decrease as he believed that global oil markets were close to rebalancing. Russia has maintained its side of the deal with steady production of 10.95 million barrels a day.

OPEC still sees  ‘considerable overhang’

While US inventories have fallen significantly, OPEC believes there’s still a considerable overhang in other regional stocks that needs to be corrected.

The OPEC Secretary General, Mohammad Barkindo completes a visit in Venezuela and Ecuador last week where he held meeting with energy officials and the presidents of both countries.

Venezuela’s oil production continues to drop due to the economic crisis in the country and is currently estimated around 1.67 million barrels a day, the lowest figure since 1989, according to Bloomberg data.

Venezuela’s president Nicholas Maduro told reporters he would invite OPEC members to consider the use of a joint cryptocurrency mechanism backed by oil.

He also pledged his commitment to the OPEC production cut arrangement for years to come.

As oil producers and investors watch the strength of the US dollar, the rise in American oil production and continued OPEC cuts, the much needed balance in the market remains the end game.  

Meanwhile analysts and investors will be watching closely as the global markets look to find a rebalance after this week’s sell-off.

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