Weekly Crude Oil Review: Soaring US Output Weighs On Sentiments

Brent daily chart

Brent daily chart

"We are now very proudly an exporter of energy to the world".

Goldman Sachs drew an even more bullish conclusion, saying in a note to clients Thursday that "the rebalancing of the oil market has likely been achieved, six months sooner than we expected".

USA production in November was 10.038 million barrels a day, just less than the record of 10.044 million barrels per day in November 1970.

Goldman said that thanks to supply-demand fundamentals returning to a finer balance, it now believed Brent crude would reach $82.50 a barrel within six months.

After averaging an estimated 9.3 million b/d in 2017, US crude oil production is projected to average 10.3 million b/d in 2018, marking the highest annual average production in the nation's history and surpassing the previous record of 9.6 million b/d set in 1970, according to the Energy Information Administration's latest "Short-Term Energy Outlook". The group is "profiting considerably from the involuntary production outages in Venezuela at present, without which the oil market would be oversupplied".

The market reversed course after the U.S. Energy Information Administration reported gasoline inventories dropped by nearly 2 million barrels last week, and distillates like diesel declined by about the same.

Much of USA production from shale formation has been in light or ultralight sweet crudes, while the vast majority of OPEC's production cuts have come from heavier, sourer grades. Production in North Dakota was 1.18 million b/d. The process of injecting water, sand and chemicals into wells to free oil and gas from shale rock formations has fueled a boom in USA output and helped the nation top Saudi Arabia as the world's second-biggest crude producer, after Russian Federation. "EIA estimates of crude oil production from tight formations in November 2017 reached 5.09 million b/d, surpassing a previous high of 4.70 million b/d in March 2015".

The production values presented here are based on EIA's monthly survey of crude oil production, which, for reasons explained in a webinar presented earlier this week, are considered more comprehensive and reliable values of USA crude oil production than the preliminary estimates presented in EIA's Weekly Petroleum Status Report.

"The long oil trade continues to be the place to be", Tortoise Capital Advisors' Rob Thummel told the financial news service. Since the beginning of the year, oil and the USA dollar index have had a correlation of -0.86, with -1 being a perfectly inverse relationship. China, in particular, started buying up large volumes of USA oil in 2017. Other analysts see WTI crude trading at between $60 and $75 a barrel in 2018.

More spending from the state oil giant will be a welcome change. Canadian producers have already seen investment dollars move out of the oilpatch and into the U.S. Some Alberta producers and oil driller are also channeling more investments into the U.S. rather than back home.

"I think the question, a little bit in the longer term is-is this the last big rise in USA production?" he questioned in an interview with Reuters.

Net imports to the United States are still now about 2.5 million barrels a day, down from a record high in 2006 of 13.4 million barrels a day. The ship is not ready to begin producing just yet as there are a few more modules on the way that will enhance the vessel's capabilities.

How to Watch the 2018 Winter Olympics Opening Ceremony Online