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Crude Oil Steady As OPEC Sees Strong Demand

14 November 2017

"Using a scenario whereby current levels of Opec [Organisation of the Petroleum Exporting Countries] production are maintained, the oil market faces a hard challenge in 1Q18 with supply expected to exceed demand by 0.6m bpd followed by another, smaller, surplus of 0.2m bpd in 2Q18". From their last close, this represents a decrease of 22 cents, or 0.35 percent.

Brent crude futures were last down 34 cents on the day at $62.82 a barrel at 1212 GMT, while U.S. West Texas Intermediate (WTI) futures fell 27 cents to $56.49.

Last week, both the crude benchmarks hit highs that were last witnessed in 2015.

Morse characterised the historic 2016 rapprochement between Saudi Arabia and Russian Federation that helped lead to the output limits as a "bromance", and said anything short of a decisive step moving forward will disappoint traders and trigger a massive unwinding of long positions in the futures market.

Traders said they were cautious on betting on further price rises.

"Prices...are starting to look like a pause or pullback is needed", said Greg McKenna, who is the chief market strategist at AxiTrader. U.S. shale output, a contributor to the global glut, has responded more slowly than expected to the recent increase in crude prices, he later told reporters. However, it also pointed out that Saudi output had risen above 10 million barrels per day.

Investors increasingly opted not to bet on higher oil prices, following a report from the International Energy Agency showing it expects rising USA shale oil and gas production to at least be among the biggest gains in the history of the industry.

Fitch Ratings said in its 2018 oil outlook that it assumed 2018 “average oil prices will be broadly unchanged year-on-year and that the recent price recovery with Brent exceeding $60 per barrel may not be sustained”.

The country's light oil price was reported $50.39 on average since the beginning of 2017 until November 3.

Additionally, the organization raised its oil demand forecast. Stockpiles have declined by more than 180 million barrels this year alone, Barkindo said. The figures came from China's statistics bureau on Tuesday.

In May, Opec producers agreed to extend production cuts for a period of nine months until March, but stuck to production cuts of 1.2 million bpd agreed in November a year ago. The group is expected to agree an extension of the cuts beyond their current expiry date in March 2018. At present, there are only around 2 million.

Crude oil prices settled higher on Monday but trade slightly lower on Tuesday morning as traders considered the outlook of supply disruptions.

Still, the IEA's “New Policies Scenario”, based on existing legislation and policy intentions, expects oil prices to rise towards $83 a barrel by the mid-2020s.

Elsewhere in the commodities market, gold edged weaker in Asia on Tuesday due to mixed sentiments, following a weaker-than-expected retail sales and industrial output in the Asian giant.

Overnight, gold prices rose on Monday in the middle of an uptick in safe-haven demand.