Decoding the crude price rally: Will the surge sustain?

Jon Howard
January 23, 2018

"Earlier this year, oil prices slumped on concerns that rising crude production from Nigeria, Libya and elsewhere would undermine output adjustments under the DoC (Declaration of Cooperation)".

Current crude oil prices are at their highest since December 2014, hitting $70.37 a barrel on Monday.

At 0848 GMT, March WTI Crude Oil futures are trading $63.25, down $0.65 or -1.00% and April Brent Crude Oil futures are at $68.21, down $0.71 or -1.03%.

According to the analyst, the recent rally in oil prices would trigger a "wave of new production" from the United States in the upcoming months.

Brent crude futures dipped 0.1% to $69.33 per barrel. In addition, the US Energy Information Administration has said that US unconventional shale oil output is expected to rise next month to 6.55mn bpd.

"We see the IEA's assessment as more realistic than OPEC's", analysts at Commerzbank AG said in a note.

IEA estimates that production growth in non-OPEC member nations would bump supply from outside the cartel higher by 1.7 million bpd in 2018.

Oil prices finished lower Friday on worries over growing USA oil production, after a major energy watchdog predicted shale producers would help drive output to levels not seen since the 1970s.

Oil prices fell to a one-week low on Friday, as a leading energy monitor predicted US crude production would hit a high this year, surpassing output from Saudi Arabia and rivaling that of Russian Federation.

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"Higher oil prices are bringing more supply to the market, particularly in North America and specifically tight oil, including unconventional NGLs [natural gas liquids]", OPEC said in its monthly oil report on 18 January.

The accord was first struck at the end of 2016 with the aim of reining in a global supply glut that has weighed on prices for over three years. Mr. Falih said the group was cutting more oil than agreed-though its efforts have been helped along by the collapse of OPEC member Venezuela's economy and energy industry.

American production is at its highest levels since the 1960s, the agency said.

OPEC economists in their monthly market report for January said the United States is the clear leader when it comes to adding more barrels, with an increase of 62,000 barrels per day previous year. OPEC said its December oil production rose by 42,000 barrels a day to 32.42 million.

The agency said: "This represents, after the downturn in 2016 and the steady recovery in 2017, a return to the heady days of 2013-2015 when US-led growth averaged 1.9 million bpd".

Saudi Arabia's Oil Minister Khalid al-Falih addresses a news conference after an Opec meeting in Vienna November 30, 2017.

The main bearish factors included the slow but continuous rise of U.S. domestic crude oil production and potential stronger contributions by other non-Opec producers such as Canada and Brazil.

However, recent circumstances have some market watchers thinking that OPEC may end its cuts early on the back of rising prices.

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