Oil prices rise as Chinese demand soaks up heightened U.S. supply
Crude edged higher as near-record Chinese orders for foreign crude signalled stronger demand in the world’s secondlargest economy.
Futures climbed 1.2 per cent in New York. A rebound in China’s crude imports last month from a one-year low defused some of the pessimism among investors fanned by a U.S. government report earlier this week showing bearish increases in fuel inventories and domestic oil production.
“Everyone is talking about that big jump in imports of crude into China last month,” according to John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “It’s definitely a strong source of demand.”
This year’s watershed moment for global oil markets was last month’s agreement by the Organization of Petroleum Exporting Countries, Russia and allied producers to extend production curbs through all of next year. Euphoria among bullish traders was shortlived though in the face of the American shale juggernaut.
Output from shale fields from the Great Plains to West Texas continued to surge, raising the spectre of a renewed worldwide glut. This week, Chevron Corp. announced plans to ramp up investment in the Permian Basin and other shale fields, extending the company’s multi-year shift toward a shale-heavy focus.
The oil market continues to feel pressure from the ongoing “rampup in U.S. crude oil production,” Kilduff said by telephone. “A lot of credit and hopes were pinned on OPEC and the deal that was cut but there continues to be more and more oil and product coming to market.”
Drillers expanded the number of rigs searching for crude in two of the busiest U.S. shale fields this week, Baker Hughes reported on Friday. The rig tallies in the Permian and Eagle Ford regions rose by three each.
West Texas Intermediate for January delivery climbed 67 cents to settle at $57.36 a barrel on the New York Mercantile Exchange. Prices declined 1.7 per cent this week, the biggest weekly loss since early October.
Brent for February settlement rose $1.20 to end the session at $ 63.40 on the London- based ICE Futures Europe exchange. The global benchmark traded at a premium of $5.96 to February WTI.
China will “inevitably” become more reliant on crude imports due to falling output from some of its biggest fields, according to Fitch’s BMI Research.
U.S. crude production expanded for a seventh week to 9.71 million barrels a day, the highest level in weekly data compiled by the EIA since 1983. Gasoline inventories surged by 6.78 million barrels last week, the biggest gain since January.
Further increases in product stockpiles in the U.S. could put pressure on spot prices, Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, said. At the same time, if the oil rig count also creeps higher into the end of this year, then “there is definitely more risk to the downside going into the first quarter.”