US oil prices hit high­est since 2015

The Pak Banker - - BUSINESS - SIN­GA­PORE -AP

US oil prices hit their high­est lev­els since mid-2015 on the fi­nal trad­ing day of the year as an un­ex­pected fall in Amer­i­can pro­duc­tion and a fall in com­mer­cial crude in­ven­to­ries stoked buy­ing. In in­ter­na­tional mar­kets, Brent crude oil fu­tures also rose, sup­ported by on­go­ing sup­ply cuts by top pro­duc­ers OPEC and Rus­sia as well as strong de­mand from China.

U.S. West Texas In­ter­me­di­ate (WTI) crude fu­tures were at $60.30 a bar­rel at 0504 GMT, up 46 cents or 0.8 per­cent from their last close, the high­est since June 2015. Brent crude fu­tures - the in­ter­na­tional bench­mark - were also up, ris­ing 45 cents or 0.7 per­cent to $66.61 a bar­rel. Brent broke through $67 ear­lier this week for the first time since May 2015.

Since the start of the year, Brent and WTI have risen by 17 and 12 per­cent, re­spec­tively, al­though the price rises from mid-2017 are much stronger, at nearly 50 per­cent.

Fri­day's WTI price rises were driven by a sur­prise drop in U.S. oil pro­duc­tion, which last week dipped to 9.754 mil­lion bar­rels per day (bpd), down from 9.789 mil­lion bpd the pre­vi­ous week, ac­cord­ing to data from the En­ergy In­for­ma­tion Ad­min­is­tra­tion (EIA) re­leased.

U.S. out­put is still up by al­most 16 per­cent since mid-2016, but most an­a­lysts had ex­pected pro­duc­tion to break through 10 mil­lion bpd by the end of this year - a level only sur­passed by top ex­porter Saudi Ara­bia and top pro­ducer Rus­sia. WTI prices were fur­ther boosted by a fall in U.S. com­mer­cial crude stor­age lev­els, which dropped by 4.6 mil­lion bar­rels in the week to Dec. 22 to 431.9 mil­lion bar­rels, ac­cord­ing to the EIA. In­ven­to­ries are now down by al­most 20 per­cent from their his­toric highs last March, and well be­low this time last year or in 2015.

In in­ter­na­tional mar­kets, China has is­sued crude oil im­port quo­tas to­tal­ing 121.32 mil­lion tonnes for 44 com­pa­nies in its first batch of al­lowances for 2018.

Based on to­tal ex­pected quo­tas, China's im­ports - which at around 8.5 mil­lion bpd are al­ready the world's big­gest - are ex­pected to hit an­other record in 2018 as new re­fin­ing ca­pac­ity is brought on­line and Bei­jing al­lows more in­de­pen­dent re­fin­ers to im­port crude. On the sup­ply side, Brent prices have been sup­ported by a year of pro­duc­tion cuts led by the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries (OPEC) and Rus­sia. The cuts started last Jan­uary and are sched­uled to cover all of 2018.

Pipeline out­ages in Libya and the North Sea have also been sup­port­ing oil prices, al­though both these dis­rup­tions are ex­pected to be re­solved by early Jan­uary.

Con­sul­tancy JBC En­ergy said the Libyan pipeline out­ages had "no ma­jor im­pact on ex­ports".

U.S. shale drillers ap­pear to have aban­doned risky fi­nan­cial strate­gies that ex­ac­er­bated the dot-com melt­down and that made the re­cent oil bust far more painful for Hous­ton com­pa­nies and their em­ploy­ees.

In re­cent months, in­vestors have de­manded ex­ec­u­tives fo­cus on de­liv­er­ing in­vest­ment re­turns and fu­el­ing op­er­a­tions with their own cash, in­stead of run­ning up large debts or di­lut­ing shares in stock sales to pump ev­er­in­creas­ing amounts of oil.

It's a big change for a boom-and­bust in­dus­try, but so far, oil com­pa­nies seem com­pli­ant, even re­strained: though oil prices have surged to­ward $60 a bar­rel in re­cent weeks, the num­ber of work­ing U.S. oil rigs hasn't sky­rock­eted. In fact, the oil-rig count has barely budged since early Novem­ber.

"The hype is over," said Chris Mid­g­ley, global head of an­a­lyt­ics at S&P Global Platts. "We're see­ing a chance in their be­hav­ior and mind­set. The dot-com boom men­tal­ity has dis­si­pated. Now there's a re­ally strong fo­cus on ac­count­abil­ity."

Mid­g­ley be­lieves in­vestor pres­sure will keep the U.S. oil in­dus­try in line in 2018 af­ter en­ergy com­pa­nies un­der-per­formed in the S&P 500 In­dex this year. He also thinks banks will tighten their purse strings for oil pro­duc­ers; that oil field ser­vice com­pa­nies will have to raise prices; and that the world's oil stock­pile will de­cline next year.

Those are just some of the things Mid­g­ley and oth­ers pre­dict for 2018, a year that could bring the oil in­dus­try fur­ther out of its fi­nan­cial straits, as long as crude prices re­main el­e­vated.

An­other thing that might hap­pen next year is a wave of cor­po­rate ac­qui­si­tions of com­pa­nies who ex­ited bank­ruptcy court led by new own­ers: their former bond­hold­ers.

Dal­las law firm Haynes & Boone, which tracked the bank­ruptcy cases of more than 130 debt-laden North Amer­i­can oil com­pa­nies, said most of the time, bond­hold­ers end up as share­hold­ers af­ter a com­pany is re­or­ga­nized in bank­ruptcy pro­ceed­ings.

"They're in­ter­ested sell­ers be­cause they never in­tended to own an oil com­pany," said Buddy Clark, a Hous­ton part­ner and co-chair of the en­ergy prac­tice group at Dal­las-based law firm Haynes & Boone. "Those bond­hold­ers are not oil men. They're bond traders."

Higher oil prices, Clark said, could mean more of these trans­ac­tions.


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