Oil price climbs as US production picks up

on May 29, 2015
Updated: May 24, 2024
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Oil prices were moderately in the green during morning trade in Europe today, as investors digested a plethora of reports and data, while the eased somewhat. US oil production picked up in the week through May 22, although crude inventories were drawn more than expected. Meanwhile, OPEC projected growing global supply and lacklustre demand in the next few years, Reuters reported.

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WTI futures for July delivery on the New York Mercantile Exchange had edged 1.03 percent higher to $58.27 per barrel as of 06:35 BST today. The US benchmark was still down more than four percent since last week, however, reaching a five-week low of $56.51 yesterday.

July Brent on the ICE in London had gained 0.22 percent to $63.03 per barrel. The global benchmark has lost more than 5.3 percent since last Friday, logging a six-week trough at $61.24 yesterday.

The Energy Information Administration (EIA) reported that crude oil inventories in the US had fallen by 2.8 million barrels in the week through May 22, as compared with expectations of a 0.8-1.2 million decrease. It was the fourth straight weekly decline. Gasoline stocks were also drawn more than expected, suggesting that peak US driving season was impacting reserves.

Further draws are expected over the next few weeks.

Some analysts, however, continued to argue that the bull rally will most likely be short-lived, as heightened production levels and weak demand support a persistent global supply glut.

US production had climbed by 304,000 barrels per day to 9.566 million bpd last week, EIA’s report showed. The figure is significant, given that there had been expectations in recent months that US output would drop as, since October, half of all onshore oil rigs have been idled.

“I’m paying the most attention to the production part of the report,” Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami, said as quoted by Bloomberg. “That’s a phenomenal production number and a sign of what’s to come.”

A draft OPEC strategy report seen by Reuters yesterday suggested that US production is indeed going to continue growing through to at least 2017.

The oil cartel also projected sluggish global demand over the next few years, which would see the ‘call on OPEC’ fall to 28.2 million bpd in 2017, from about 30 million bpd currently. OPEC supply in 2019 was forecast at 28.7 million bpd, down from about 31 million currently.

OPEC also said that shale oil would be the new swing factor, and estimated that tight crude and oil sands will account for 45 percent of the growth in global energy production through 2035.

“Improved technology, successful exploration and enhanced recovery from existing fields have enabled the world to increase its resource base to levels well above the expectations of the past,” OPEC’s report read, according to Reuters.

“The world’s liquids resources are sufficient to meet any expected increase in demand over the next few decades.”

OPEC is holding its next decision-making meeting on June 6. Expectations are that the group will elect to maintain current production levels, as it did at its two previous meetings despite calls for a reduction in output.

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