Oil prices rise as efforts to curb supply continue

West Texas Intermediate Crude Oil

Daily September West Texas Intermediate Crude Oil

When prices rise to compensate for output cuts, great.

For Opec, that might be the most logical move: let the deal wither and allow prices to do the job of rationalising (non-Opec) supply. Prices gained $2.31 to $46.54 a barrel last week. Previously overshadowed by China, India's demand for fossil fuels has been intensely growing. Distillate product supplied averaged over 4.1 million barrels a day over the past four weeks, up by 9.9% compared with the same period a year ago. Prices are up 4.7 percent this week. No balance sheet riskBusiness Insider notes that with DrillCos, it takes over the drillable land, and usually turns over 100 percent of the cash flow from oil and gas production to the investors until they earn a 15 percent return on their investment.

"We are also looking at buying low sulphur oil from America if priced competitively". The market would welcome real signs that supply (exports) and not just production was coming down.

The premise is that Opec must account for the rise in Libyan and Nigerian supply in recent months. “What Ecuador does or doesn't do has no major impact on OPEC output.”. OPEC's share of the cuts, that will run to March 2018, amount to about 1.2 million bpd.

That acceleration in demand, when combined with OPEC's output cuts, resulted in a noticeable draw on USA oil inventories in recent weeks. BMI Research expects China's refining activities to ease in the second half of the year, as the Chinese economy loses steam amid intensifying efforts to curb financial risks. The revisions have been largely prompted due the fast rebounding shale oil production in the US.

"However last week's healthy stock draws in the U.S. and the rig count are slowly but surely not increasing at the rates they were earlier on in the year", he added.

Saudi Arabia also increased its production by120,000 barrels per day (bpd) in the same period. According to the API, today's build brings the total inventory build for crude oil in 2017 to 2.696 million barrels. This is going to remain the biggest head-wind for oil prices.

USA drillers added two oil rigs in the week to July 14, bringing the total to 765, Baker Hughes said on Friday. Gasoline demand inched up to 9.78 mbpd from 9.70 mbpd which led to stocks declining by 1.6 million barrels.

The rise in prices this week is also a "reflection of some relatively bullish inventory draws", Stewart Glickman, an energy equity analyst at CFRA Research in NY, said by telephone.

Distillate stockpiles, which include diesel and heating oil, fell by 2.1 million barrels, versus expectations for a 1.2 million barrels increase, the EIA data showed.

"We feel that the market is on the right way of correcting itself", he said.

Nonetheless, there has been a clear downward trend in both absolute stocks and days of cover since late 2015 as production has fallen short of combined requirements.

The bounce in prices could extend in the near term given that most of the bearish triggers have been baked into prices.

Crude prices were slightly higher after the data release.

Buying on dips is thus advised. An extended rally towards higher resistance zone of Rs 3,100-3,120 now looks possible.

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