Oil prices extend gains after U.S. production drop

Oil prices extend gains after U.S. production drop

"Also, the USA tight oil sector continues to be dynamic, and quickly evolving trends in this sector could affect both current crude oil prices and expectations for future prices", according to STEO.

Oil prices continued to rally Thursday as traders continued to cheer over a surprise decline in USA production and a larger-than-expected drawdown in US crude stockpiles. By the fourth quarter, the average price per barrel is predicted to hit $57.31, up from the EIA's last forecast of $54.95.

"The lower draw in crude oil stocks, combined with the strong builds in product stocks is bearish news for prices".

S. crude inventories in official data on Wednesday. “Domestically, things are lining up in terms of moderate prices and increased opportunity for production.”.

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"EIA estimates it costs roughly $0.50/Bbl more to transport WTI from the Asia than it costs to ship Brent from the North Sea to Asia", EIA/STEO reported. Analysts had expected a smaller, 2.625-million-barrel build. EIA expects global inventories to increase by about 0.2 million b/d in 2018 and by about 0.3 million b/d in 2019. Oil traders have closely watched USA crude production to see whether output gains from US shale formations will surpass the 1.8 million bpd cuts. Oil production slid by 290,000 barrels a day to 9.49 million a day. OPEC and non-OPEC participants agreed on November 30, 2017, to extend the production cuts through the end of 2018 in an effort to reduce global oil inventories. That will be the first time production has reached that level since 1970.

Crude oil production from the United States is expected to increase more than in any other country. Still analysts are cautious of its long-term prospects as USA shale is expected to continue to eat away at OPEC's production cut efforts as prices rise, although that caution appears to be weakening somewhat as prices continue to hold.

The continued drop in U.S. crude oil inventories comes as the United States continues to ramp up production, hitting the second highest production level of 2017 in the last week of December of 9.782 million bpd. Demand is expected to climb an additional 340,000 bpd in 2019 to 20.65 million bpd, the agency said.