Oman oil scales 3-year high on firm demand

Ashley Carr
September 27, 2017

Brent crude rose 43 cents, or 0.8 percent, to settle at $56.86, a penny shy of the session high which was also the highest since March.

On Tuesday, Turkish President Tayyip Erdogan repeated a threat to cut off the pipeline that carries 500,000-600,000 barrels per day (bpd) of crude from northern Iraq to the Turkish port of Ceyhan, intensifying pressure on the Kurdish autonomous region over its independence referendum. The total draw for crude oil in 2017 now stands at just shy of 23 million barrels.

Investigations showed that the price of oil may stabilise in excess of $55 per barrel in the fourth quarter, especially as many stakeholders, particularly Russia, Azerbaijan, Brunei and Sudan, have made a decision to support the efforts of OPEC in achieving stability.

Opec and non-Opec producers meeting in Vienna last week said the market was well on its way towards rebalancing. West Texas Intermediate, the USA benchmark for crude prices, stood at $52.35 a barrel.

Demand from China has been a crucial driver of the return to above $55 a barrel prices as the world's second largest economy builds its strategic petroleum reserve. The Russian energy minister said OPEC did not agree on a freeze beyond March 2018, making it a key date for the oil industry. At the same time, investors seem more confident in the Organization of the Petroleum Exporting Countries' plan to rebalance the market through its production-cut agreement, analysts say. Backwardation signals immediate market strength while contango shows traders prefer to store oil in the hope of fetching a higher price for later delivery.

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Meanwhile, Opec, Russia and several other producers have cut production by about 1.8 million barrels per day (bpd) since the start of 2017, helping oil prices rise by about 15% in the past three months. "I imagine confidence will come back to the market with more activity, and diversification should accelerate", said Imtiaz Sikder, a finance advisor.

On the whole, the near term bias for oil remains positive and prices sustaining above $50 will further support technical buying.

The major oil producers' production cut deal has supported crude oil prices since November 2016. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the US could at least keep oil prices steady around current levels in the second half of 2017.

"We're seeing more and more evidence that it's not the global oil companies, it's not the independent oil companies that are lagging new investments, but it's OPEC countries lagging, particularly those five", he said. That amount has offset about half of the output reduced by the rest of OPEC - the group agreed to cut production by 1.2 mb/d.

Just last June the Energy Information Administration (EIA) is excited about the surging US oil rig count made a bold prediction that USA crude oil production would reach a record annual average of 10 million barrels a day in 2018, blowing away the previous record of 9.6 million barrels a day in 1970.

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