Crude oil market future remains uncertain

Hannah Rogers
May 3, 2018

However, the diplomatic breakthrough on the Korean Peninsula is taking away one source of geopolitical risk, at least for now following the historic summit that marked the first time a North Korean leader has crossed the border into South Korea in decades. "Concerns over the US shale engine may have recently been put on the back burner but this reprieve is not expected to last", PVM Oil Associates strategist Stephen Brennock said. Can this have a positive effect on the USA economy, the global economy or is it likely to have more of an adverse effect?

US oil production also rose to a record of 10.62 million barrels per day (bpd), a jump of more than a quarter since mid-2016. China had become the world's largest net importer (imports less exports) of total petroleum and other liquid fuels in 2013.

In 2017, an average 56 percent of China's crude oil imports came from OPEC producing members.

If the backwardation was confined mostly to one or two months, it could be dismissed as an aberration or a sign of market manipulation.

"There are worries that Iran's oil exports could fall by about 1 million barrels per day from current levels", said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo.

If this continues, "oil inventories are going to be somewhat undersupplied as we get into the second half of 2018, and that's important because we're entering a heavy demand period in the oil industry; it's the summer driving season, and that's when oil demand really takes off", says See, who manages the CIBC Energy Fund.

European buyers of Iranian oil are treading carefully as the May 12 deadline for United States president Donald Trump to waive the oil-import related sanctions against Iran nears.

The question now is: Will China find itself in the same foreign oil dependence quandary as the US did from the early 1970s until the past decade? To be sure, increasing oil exports improves terms of trade and is a benefit to producers.

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US shale output is likely to accelerate further in the second half of 2018 and into 2019: the number of rigs drilling for oil is rising again in response to the increase in prices.

US West Texas Intermediate crude futures lost 11 cents, or 0.2 percent, at $67.82 per barrel. So whether the price is too high or too low that's basically up to the market to decide we've seen them both higher and significantly lower than what we are now.

As of 0228 GMT, the US Dollar Index was down 0.19% at 92.415. "Additionally, crude oil demand is expected to remain healthy in 2018 and 2019, higher than expected GDP growth".

Rising inventories are partly due to soaring USA production, which jumped by a quarter in the last two years to 10.6 million bpd.

However, OPEC and Non-OPEC's joint efforts at the end of 2016 to cut back supplies by 1.7 mbd has helped oil markets reach close to the consortium's target of 5-year average OECD oil inventories.

Trump has also threatened to hit Venezuela with oil sanctions that would further slash the OPEC nation's crumbling output.

Crude inventories jumped by 6.2 million barrels to about 436 million barrels in the week to April 27, compared with expectations for an increase of 739,000 barrels.

On Friday, the Brent-WTI price spread neared $7, widening further to encourage USA producers to export crude to customers overseas.

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