Benchmark oil futures open the year with levels above $60

Saturday, 13 Jan, 2018

The main concern will be rising shale oil production in the USA, now that world prices are above the $50-55 level that shale producers need to break even. According to analysts, the $60-plus WTI price isn't sustainable in the near term, barring geopolitical risks that could push prices up.

There have been some concerns that Russian Federation might not abide fully by its pledges with OPEC to curb oil output up to 300,000 bpd from its highest monthly level in 30 years, reaching 11,247 million bpd in October 2016. Crude production in October rose to the highest in more than 46 years, according to the latest figures available from the EIA, and there are few signs of significant reductions since then.

CNBC says U.S. shale drillers, who use advanced drilling methods to unlock oil and gas from rock formations, "have frustrated efforts by major oil producing nations to reduce brimming global crude stockpiles and boost prices". Regarding Iran, so far there are no reports of there being any consequential supply disruptions. The cuts began previous year, and the producers have made a decision to extend the agreement through the end of 2018.

Oil market observers will be looking ahead to an EIA report January 9 outlining the agency's outlook for 2019 and the implications for USA crude production. A 10% rise in crude prices could increase CPI inflation by around 25 basis points if oil marketing companies were to pass on the full increase to consumers and if there is no excise duty cut.

Analysts at JBC Energy said the price reaction to the Iranian unrest was overdone, while Swiss bank Julius Baer said prices projected "an overly rosy picture" that left the market at risk of profit-taking. By mid-2017 it had stockpiled 37.73 million tons of oil, equal to 275 million barrels, in nine bases, up from 33.25 million tons at end-June 2016.

This would provide further upward momentum for prices, as would more militant attacks in Libya: Yesterday, a senior official from the U.S. Africa Command told Asharq Al-Awsat Islamic State forces in Libya may be planning an attack on the country's so-called Oil Crescent.

Worldwide benchmark Brent crude traded at $67.93 per barrel - its highest level since May 13, 2015.

What is sure is that the market is supported by many but temporary supply risks, that when resolved could bring back the prices to like $5-$10 lower.

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