It’s not all about OPEC, shale
The discovery of a tiny fracture somewhere along a major U.K. pipeline system prompted an emergency shutdown on Monday, sending oil prices surging and overshadowing the latest moves by OPEC and U.S. drillers in their oilmarket tug of war.
U.S. crude prices nearly reached $58 a barrel, and the global benchmark hit its highest point in 2½ years after London-based Ineos said it could take two weeks to repair the “small hairline crack” that forced it to stop the 450,000 barrels of oil a day that flow through the critical Forties pipeline system.
Adding to the market turbulence, Houston oil company Apache Corp. said it shut in production at its prolific Forties field 110 miles northeast of Aberdeen.
The episode demonstrated how volatile prices can be when supplies suddenly go offline and how easily the oil market’s attention can be drawn away from signs of increased U.S. drilling and OPEC’s efforts to curb the global glut, a struggle that could decide how Houston’s economy fares in 2018.
Unless something else surprises the market.
“There’s more to the market than OPEC and shale,” said Ann-Louise Hittle, an oil market analyst at research firm Wood Mackenzie.” These other factors can have a big impact on prices. Supply could always be cut off, and the market could tighten more than expected.”
U.S. oil prices rose 63
cents on Monday to settle at $57.99 a barrel in New York — up from $55.96 a barrel early last week. Brent, the global benchmark, rose to its highest point in more than two years.
The surge came against the backdrop of the latest moves by the Organization of the Petroleum Exporting Countries to reduce the global oil glut — and the U.S. oil industry’s efforts to pump more oil. The week after OPEC and its allies struck a deal to cap oil production next year, crude exports from the Middle East fell the most since February.
Oil exports from the Persian Gulf, including Saudi Arabia, Iran, Iraq, Kuwait and the UAE, fell by 20.6 million barrels to 121.2 million barrels last week, according to data collected by Thomson Reuters analysts.
Late last month, Saudi Arabia, Russia and almost two dozen other producers agreed to keep 1.8 million barrels of oil a day off the market through the end of next year. Despite cuts in production, analysts had criticized the group’s previous agreement when exports remained at high levels for months this year.
Saudi Arabia, which saw an increase in exports last week, has said it expects its exports to drop by 120,000 barrels a day this month. Saudi officials said Monday it plans to cut exports to Asia by 100,000 barrels a day next month.
Iraq’s oil exports fell by 3.4 million barrels to 23.3 million barrels last week. And Iranian exports declined 8.7 million barrels to 11.5 million barrels. Exports also fell in Kuwait and the UAE — falling by 8.8 million barrels and 9.2 million barrels, respectively — while Qatar increased exports by 2.7 million barrels.
Meanwhile, U.S. drillers added two oil rigs to the fleet of working machines last week, bringing the nation’s oil rig count up to 751, according to Baker Hughes. That initially sent oil prices lower on Monday as investors feared shale producers could offset OPEC’s cuts.
Hittle said OPEC’s agreement to extend production cuts through the end of next year will tighten the market and should lift prices, depending on how aggressive U.S. shale drillers become as oil prices climb. But the market is, of course, impossible to predict, she added.
“Demand could be higher than expected, or some supply could be cut off,” she said.