Oil Increases In Value As US Supply Reduces

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In New York, oil prices gained momentum after a report from the government stating that biggest US storage hub experienced a decline in its crude stockpiles. The level is at lowest since October. The oil futures gained 0.6% as a result. At Cushing, Oklahoma, the supplies fell down by 1.27 million barrels just in the last week. The stockpiles in the entire nation increased by 2.35 million barrels. However, the American Petroleum institute reported that the stockpiles increased by 5.04 million barrels.

Previously, there were hopes that the OPEC’s deal to cut down oil production all over the world would help the US Shale oil supply. However, the International Energy Agency claimed that it won’t be the case in reality. As a result of OPEC output deal, oil climbed up to reach more than $50 per barrel. Several oil producing countries including Russia agreed to cut down by the oil production by 1.8 million barrels per day. This step is taken to reduce the oversupply in various global inventories. Iraq and Saudi Arabia are keen on implementing the deal by cutting down productions. So, IEA expected the US Shale output to increase as a result.

In the New York Mercantile Exchange, oil was reaching $51.37 per barrel which increased by 29 cents for February delivery. However, the total traded volume was 17% lesser than the 100 day average. Similarly, March settlement futures increased by 24 cents to reach a price of $54.16 per barrel. In the ICE Futures Europe Exchange, the global oil benchmark reached a $2.04 premium for the March West Texas Intermediate. The increase in crude supply oil levels can be attributed to the drop of imports.

Experts believe that oil will receive a stronger support at $50 and beyond. In this year, the price of the oil is expected to be in the range of $50 to $60. If the current trend continues, oil will be approaching $60 by the end of this year. It will increase further in the next year. At Cushing, the crude stockpiles reduced to 65.7 million barrels. EIA reports that crude inventories across the nation continued to increase for the third week, reaching 485.5 million barrels. The refineries currently operate at 90.7% of their capacity, which is a sharp decline in the past three months. These refineries have decreased their capacity by 2.9%. Even then, the gasoline stock piles increased to 246.4 million barrels. On the other hand, the distillate fuels inventories reduced to 169.1 million barrels.

When the oil-producing countries cut down their output as recommended by OPEC, oil prices will continue to increase all over the world. The increased oil prices will trigger more drilling by the explorers of US Shale oil. They are much more efficient at the moment compared to the last two years. The IEA has however predicted a stagnation of production in 2017. Previously, it was expected that oil prices would reach $55 in the year 2016, but the year was a disappointment. However, the curb in oil production will easily push the oil prices in the upcoming year.

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