Oil market to rebalance despite US import flood

singapore — The global oil market’s march to equilibrium won’t be deterred by the increasing volume of crude being poured into US storage tanks, according to Goldman Sachs Group Inc.

The increase in stockpiles is driven by a surge in imports as Brent crude, used as a marker for crude from regions such as West Africa and the North Sea, turned cheaper against American varieties such as Louisiana Light Sweet, the bank said in a report. That will fade as output cuts this year by Opec and other producing nations start affecting deliveries to the US, analysts including Damien Courvalin wrote in the note.

“We do not view the recent excess US builds as derailing our forecast for a gradual draw in inventories, with in fact the rest of the world already showing signs of tightness,” the analysts wrote in the report titled ‘The darkest hour is just before the dawn’.

With US crude production rising just as the Organization of Petroleum Exporting Countries and other nations including Russia cut output as part of a December pact, American exports will probably increase as its cheaper oil turns more attractive abroad, according to Goldman.

Citigroup Inc also said in a report on Wednesday that while stockpiles were gaining on an increase in imports, inventories would shrink after the first quarter, and that the second half of 2017 would be “constructive” for the market.

US crude inventories rose to 508.6 million last week, the highest since May, according to the Energy Information Administration. Stockpiles at Cushing, Oklahoma, the nation’s biggest storage hub and the delivery point for West Texas Intermediate, climbed the most in almost 2 months. Crude imports surged to 9.37 million barrels a day, the highest since September 2012.

“We view imports as the key driver to these large builds and as the simple reflection of the fourthquarter 2016 global oil market surplus of more than 0.5 million barrels a day,” the Goldman analysts wrote in their report. Given Opec and other producers are complying at a “historically high level” of 85 per cent to their proposed output cuts, the bank said the “import channel will reverse from March onward.”

Still, US production has rebounded faster than it expected, Goldman said. Domestic output last week rose to 8.98 million barrels a day, the highest since April, according to the EIA. This ramp up has created a downside risk to its 2018 WTI price forecast of $55 a barrel, the bank said. — Bloomberg