News of declining oil supplies called ‘bullish, really bullish’
U.S. oil prices ticked up Thursday after a key monthly report estimated global demand for crude has climbed while supplies fell.
Cold weather in northern Europe and rapid industrialization in Asia pushed worldwide oil demand to 96.5 million barrels per day in 2016, a 1.5 million-barrel increase, the International Energy Agency said in its January energy outlook.
At the same time, the agency said, global supplies fell last month to just under 97.6 million barrels per day, largely due to OPEC production cuts. That is a drop of more than 600,000 barrels per day.
Analysts lauded the news as good for the industry.
“Bullish, really bullish,” investment bank Tudor Pickering Holt said.
U.S. oil prices rose 29 cents, or about half a percent, to $51.37.
The Organization of the Petroleum Exporting Countries posted record production last year. But Thursday’s report noted that OPEC began to chop production by 320,000 barrels per day, to 33 million barrels, in December. The IEA cited lower output from Saudi Arabia and attacks on Nigerian pipelines and production fields and said further trims appear likely.
“Early indications suggest a deeper OPEC reduction may be underway for January,” the Paris-based IEA said, “as Saudi Arabia and its neighbors enforce supply cuts.”
Still, the report warned that the long-standing oil glut has not yet dissipated and may not anytime soon.
World supply in 2016 rose by 300,000 barrels per day over the previous year as OPEC output more than offset declines in the U.S. and other non-OPEC countries where drillers reacted to slumping prices.
Moreover, OPEC’s cuts, brokered in November as
“Early indications suggest a deeper OPEC reduction may be underway for January, as Saudi Arabia and its neighbors enforce supply cuts.” Paris-based IEA
an antidote to the 2-yearold price crash, may not shape up as the cartel has promised. OPEC agreed to reduce production by 1.2 million barrels per day in the first six months of 2017; Russia, Oman and Mexico added cuts of almost 600,000 barrels per day.
But the report bolstered fears that some OPEC countries won’t trim as much as they said they would.
“It is far too soon to see what level of compliance has been achieved,” the report said.
Non-OPEC production should grow by 385,000 barrels per day this year, the report said, as rebounding prices stimulate U.S. drilling.
The U.S. shale revolution has shifted global oil power. Many worry that zealous U.S. drillers could add to the global oil glut and sour OPEC’s promise to cut.
“Attention is inevitably focused on the U.S. shale oil patch,” the report said. Companies have added rigs to U.S. oil fields for six straight months — adding more rigs in December than during the shale boom’s “heady days of April 2014.”
Moreover, the report continued, U.S. drilling efficiency has dramatically improved, allowing drillers to get more oil from each well and to do so more quickly.
U.S. crude stockpiles, meanwhile, remain high. The Department of Energy reported Thursday that U.S. oil inventories rose unexpectedly by 2.3 million barrels last week, six times more than analysts’ expectations, driven in part by a steep decline in crude use by refineries.
Gasoline inventories also climbed, by 6 million barrels last week, and sit above average for this time of year.