No let-up in crude prices before March

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There are several reasons why oil markets have tightened.

Crude oil futures slipped from 3-year highs Friday, as traders booked profits from a furious rally inspired by a weak dollar and hopes the global market will re-balance this year. Brent in London traded around $US68.55 per barrel, a new 2 ½-year high. Natural gas liquids and condensates could be one reason why, despite the recent rally in oil prices, the number of active rigs drilling in North America actually has declined over the past six months. USA crude oil production is expected to continue increasing in 2019 to an average of 10.8 million b/d.

Oil prices held near three-year highs on Thursday, supported by a surprise drop in USA production and lower crude inventories, although analysts increasingly warned of signs that fuel markets have overheated.

OPEC crude oil production is forecast to increase by 0.2 MMBPD in 2018, partially reflecting the Energy Information Administration's expectation of Libya maintaining relatively high production levels achieved near the end of 2017, according to EIA's just-released Short-Term Energy Outlook (STEO).

Production was expected to rise to an average 10.04 million bpd during the first quarter of this year, the agency said in a monthly report.

But the USA refining sector is running near capacity, turning oil into a growing supply of gasoline, diesel and heating oil.

Members of the Organization of the Petroleum Exporting Countries fear current price gains could prompt US shale oil companies to flood the market.

No let-up in crude prices before March
No let-up in crude prices before March

Most of the growth in United States output will come from the Permian basin, a huge shale region spanning western Texas and New Mexico. EIA expects OPEC crude oil production to increase by 0.2 million b/d in 2018 and by an additional 0.3 million b/d in 2019 as it slowly returns to pre-agreement levels.

Most of the remaining growth will come from offshore wells in the federal waters of the Gulf of Mexico, with seven new projects expected to come online by the end of 2019, the agency said.

Phil Flynn, the senior market analyst for the PRICE Futures Group in Chicago, said in an emailed market report that demand strains were offsetting some of the production trends.

Oman Minister of Oil & Gas Mohammed Al Rumhy sees oil prices holding around $65-70/bbl for the next few weeks as the region reduces output by 45K b/d, while Russian Energy Minister Alexander Novak warns that ' the market hasn't rebalanced in full ' as Lukoil CEO Vagit Alekperov favors crude stabilizing around $70/bbl.

Worldwide, the EIA sees oil consumption rising by about 1.7 mb/d in both 2018 and 2019, led by stronger demand from China and India.

The national average price this summer should peak in August at $2.63.

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