Oil Prices Higher Ahead of OPEC Meeting

Calvin Saunders
March 9, 2018

The most hard thing is to figure out why exactly crude oil prices reach a certain level at any given point, especially these days. The costs may hit the U.S.in many ways: from the higher cost of steel and aluminium inputs into a wide array of products up to retaliatory measures from countries around the world. US oil production has been rising due to the shale boom, helped by technological advances and improved efficiency.

A Bloomberg survey showed crude storage in tanks and terminals across the country likely rose 3 million barrels last week. The S&P 500 index was last down 0.77 percent.

Traders are concentrating on the supply side of the market. The investment yielded four billion barrels of crude, condensate and NGLs globally - not since the 1930s was so little oil found.

The International Energy Agency (IEA) now thinks that the US could become the world's largest oil producer as early as this year, beating Russian Federation by producing more than 11 million barrels per day. Cheniere Energy Inc. is also advancing plans to export LNG from a new terminal near Corpus, with the first train ready in 2019. As oil prices recovered, so did drilling. The five-year prospects of the IEA show that the new production capacity of the group will shrink by about 62% compared to the previous report.

Another production increase may trigger a price drop in the global oil market. Other OPEC producers want in on the action too. "The production growth in the US should be sufficient nearly on its own to meet the expected rise in global oil demand until 2020".

The IEA report will provide a fascinating backdrop to the start of the annual CERAWeek conference in Houston, where industry titans and oil ministers will gather this week. Then, in 2014, with the market oversupplied, it chose to fight head-on, opening the spigots and sending oil prices to below $30 a barrel in a war of attrition.

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Despite governments around the world enacting measures to reduce carbon emissions to help fight climate change, the latest oil market forecast from the International Energy Agency (IEA) makes it clear that the world is yet to turn its back on fossil fuels. Apart from the United States, Canada, Brazil and Norway will supply oil till 2020.

The boom in U.S. shale oil has dramatically expanded the availability of ethane, and a string of new projects on the U.S. Gulf Coast are underway to process it.

USA output has also dented sentiment. Growth of more than one million barrels per day (Mbd) in 2017, followed by increases of 2.5 Mbd this year and next, could cut into OPEC's market share near term.

In early January, Trump moved to open almost all offshore waters to drilling, New York Times reported.

Oil prices has been continuously moving up and down over the last few decades, and this is something that keeps worrying millions of traders of investors all over the world. Additionally, on February 27, oil entered an engulfing bearish pattern on the daily chart, which indicates a bearish reversal.

Brent crude futures fell $1.74 to $64.05 a barrel, a 2.6 percent loss. A cross of the 21-day of the 55-day would also be a bearish signal. This raises the question: Will OPEC producers fail to make the necessary long-term investments? Trading with state owned PDVSA is becoming more hard but Venezuela has been using USA tight oil as a diluent for its heavy oil.

Other reports by MaliBehiribAe

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