Oil soars to near 2-year peak and this may spur more crude exports from the US

PUBLISHED : Wednesday, 01 November, 2017, 4:51am
UPDATED : Wednesday, 01 November, 2017, 4:51am

Oil prices settled higher again on Tuesday, notching a monthly gain of more than 5 per cent, but analysts said bullish sentiment that has driven Brent crude to its highest in more than two years could encourage US producers to export more oil.

Brent settled up 47 cents or 0.7 per cent to US$61.37, close to its July 2015 highs reached earlier this week, and up around 37 per cent from its 2017 lows hit in June.

US West Texas Intermediate crude (WTI) settled up 23 cents or 0.4 per cent to US$54.38, still near its highest since February and close to its highest in more than two years.

Traders and brokers said investors were adjusting positions after price rises of around 5 per cent in October. For the month, Brent was up 6.7 per cent, while WTI rose 5.2 per cent. WTI’s discount to Brent has widened to nearly US$7, making it attractive to exporters.

“The large differential has opened the door on regional arbitrage, driving a spike in US crude exports over recent weeks,” BMI Research said in a note.

US crude exports have jumped to close to 2 million barrels per day (bpd) and production has risen almost 13 per cent since mid-2016 to 9.5 million bpd.

“The problem is as soon as prices move up it’s too easy for US producers to add another rig or another completion crew,” said Stewart Glickman, energy equity analyst at CFRA Research in New York. “Then they increase production and you’re back where you started.”

Market watchers are looking ahead to weekly energy data from the American Petroleum Institute and from the government on Wednesday.

Eleven analysts polled ahead of inventory reports from the industry group American Petroleum Institute (API) and the US Department of Energy’s Energy Information Administration (EIA) estimated, on average, that crude stocks were forecast to have fallen 1.8 million barrels in the week ended October 27.

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But analysts said inventory numbers remain high.

“The inventory numbers have come down but the five-year average is still around 400 million barrels,” said Glickman, “So we still have a ways to go.”

Iraq’s move to increase oil exports from its southern ports by 220,000 bpd to 3.45 million bpd to make up for supply disruptions from its northern Kirkuk fields also weighed on prices, traders said.

Bullish sentiment has been fuelled by a pledge by the Organisation of the Petroleum Exporting Countries, Russia and other exporters to hold back about 1.8 million bpd in oil production to tighten markets.

Opec’s adherence to its pledged supply curbs rose to 92 per cent from September’s 86 per cent, a survey showed, as top exporter Saudi Arabia continued to pump below its Opec target and output in Venezuela, in economic depression, declined further.

Opec oil output fell this month by 80,000 bpd, as exports from northern Iraq dropped and other producers maintained adherence to the supply cut deal.

Opec will next meet at its headquarters in Vienna on November 30.