Published: Sat, March 17, 2018
Global Media | By Derrick Guzman

IEA raises global oil demand estimate as supply surges on USA growth

IEA raises global oil demand estimate as supply surges on USA growth

Robust demand for oil should help offset increasing supply to keep the oil market roughly in balance, the agency said.

U.S. West Texas Intermediate (WTI) crude futures were up by 9 cents cents to $61.05 a barrel. Total product demand was the highest since January. Earlier in the year prices had soared to above $70.

Benchmark Brent crude was worth $64.46, down $0.18, per barrel in late afternoon trading on Wednesday.

"The only reason we are not up more is the more bearish OPEC oil market report".

Looming over markets has been a relentless climb in USA crude output, which hit another record last week by rising to 10.38 million bpd, up by more than 23 percent since mid-2016. OPEC and several other non-OPEC producers led by Russian Federation began cutting supply in January, 2017 to erase a global glut of crude that had built up since 2014. This year, supply is expected to increase by 1.8 million bpd, led by non-OPEC producers such as U.S. shale.

In economic news today, import prices in the USA increased by more than expected in the month of February.

When prompt futures contracts trade above those for delivery further out, a pattern known as backwardation, it pays to bet on a price rise, but a reversal into contango wipes out that profitability. U.S. output climbed by 12,000 barrels to 10.381 million barrels a day last week, the highest in weekly data going back to 1983, according to the Energy Information Administration.

Motor fuel held in storage fell 6.27 million barrels last week, while distillate inventories dropped to 133.1 million, the lowest level since December, an Energy Information Administration report showed.

USA production growth is still expected at 2.7% in 2018, up from 2.3% in 2017.

Another grim disclosure with the potential to influence traders in coming days was provided by Bloomberg, which noted that although Saudi Arabia remains committed to the Organization of the Petroleum Exporting Countries' (OPEC) objective of restoring inventories to their normal levels, "OPEC shipments will rise by 100,000 bpd in the four weeks to March 31, according to tanker tracker Oil Movements".

Prices were supported in the morning by a pickup on Wall Street, but USA stocks retreated throughout the day. As crude oil is primarily traded in United States dollars, the commodity tends to weaken when the dollar strengthens.

But even before it became apparent that inventories had increased, the oil futures market flipped into a structure that usually reflects the perception that supply is greater than demand - known as contango, when current-month prices are weaker than forward prices.

"The International Monetary Fund expects world trade to increase by 4.6 per cent in 2018, suggesting continued support to oil demand".

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