Oil closes lower as Russian Federation casts doubts on Opec cuts extension

Violet Tucker
November 16, 2017

Crude oil prices fell in Asia on Wednesday as US industry inventory data weighed on sentiment and markets noted a more downbeat forecast for demand in 2018 by the IEA overnight.

US West Texas Intermediate (WTI) crude was at $55.10 a barrel, down 60c or 1.1%.

Just last week, prices for both crude benchmarks hit their highest levels since 2015.

As for the oil price, the IEA has cut its forecast by 18 percent to $83 per barrel by 2025, and by 11 percent to $111 per barrel by 2040, the agency's World Energy Outlook 2017 showed on Tuesday.

The scenario will see demand grow from 95.4 million barrels per day, in 2016, to reach 111.1 million barrels per day by 2040, with the global economy growing by an average of 3.5 per cent per year during that time.

"The oil market faces a hard challenge in Q1 2018 with supply expected to exceed demand by 600,000 bpd followed by another, smaller surplus of 200,000 bpd in Q2 2018", the agency said.

"Overall, the report is somewhat supportive because it was not as bearish as the previous API report last night - that is why we are slowly digging our way out of the downside seen earlier this morning", said Phil Flynn, senior energy analyst at Price Futures Group in Chicago.

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United States oil and gas output is projected to surpass that of any other country in history, due to "a remarkable ability to unlock new resources cost-effectively".

"The recent price support, namely the tension in the Middle East, has been swept aside as rising rig counts and USA shale output (are) in the focus of traders", PVM Oil Associates analyst Tamas Varga said. Also, supplies are likely to exceed that level, particularly as USA production continues to rise.

USA oil production has already increased by more than 14% since mid-2016 to 9.62-million barrels a day and is expected to grow further.

Crude exports rose by 260,000 barrels a day, while inventories at the key Cushing, Oklahoma, pipeline hub fell by 1.5 million barrels, the largest draw since July. The largest contribution to demand growth - nearly 30 per cent - would come from India, whose share of global energy would rise to 11 per cent by 2040, it said.

Despite the cautious sentiment, traders said oil prices were unlikely to fall far, largely due to supply restrictions led by the Organization of the Petroleum Exporting Countries and Russian Federation, which have helped reduce excess stockpiles.

The deal expires in March 2018 but Opec will meet on November 30 to discuss policy, and it is expected to agree an extension of the cuts.

Other reports by Guamnewswatch

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