Oil Extends Biggest Drop in Two Months as Dollar and Shale Weigh

Violet Powell
February 9, 2018

Oil prices hit their lowest in six weeks on Thursday after data showed US crude output had reached record highs and the North Sea's largest crude pipeline reopened following an outage.

This led oil prices to rally close to $70 per barrel over the past month.

The United States has been a net energy importer since 1953, but in its in annual energy outlook released on Tuesday, the EIA projects the USA will become a net energy exporter as early as 2022. "While oil prices are likely to be supported at this level after its correction, the upcoming United States data will be the deciding factor" for future prices.

It's above that of top exporter Saudi Arabia's and within reach of Russia‘s.

"Once we are out of the winter season, into summer, we should see better data and better demand on the back of a global synchronized growth", Lennox said.

The UAE produced around 2.87 million bpd of crude oil in January, in line with its production quota under the OPEC supply cut deal.

United States commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.9 million barrels from the previous week. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.1 percent at $63.35 a barrel, the Wall Street Journal reported.

"Crude was acting like a puppet with the equity markets and dollar acting as the puppeteer", said Brian LaRose, senior technical analyst at ICAP.

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Although the news is significant inasmuch as it indicates the United States' strengthening position on global oil markets, it is unlikely that USA condensate imports into the UAE will become a regular thing, according to at least one analyst.

In contrast to declining domestic production, EIA estimates that growth in China's consumption of petroleum and other liquid fuels in 2017 was the world's largest for the ninth consecutive year, growing 0.4 million b/d (3%) to 13.2 million b/d. The contract dropped $1.60, or 2.5 percent, to settle at $61.79 on Wednesday, the biggest decline since December 6.

USA oil output increased for a fourth week, the Energy Information Administration data showed yesterday.

"The report was squarely bearish with the across-the-board inventory rise".

Another contributing factor to stronger oil prices is a weaker USA dollar.

Product inventories also increased, with gasoline up 3.4 million barrels to 245.5 million, and distillates up 3.9 million barrels to 141.8 million, according to the administration.

Global crude oil prices continued to extend last week's losses through Monday and early Tuesday trade, tracking plunging global stock markets.

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