Published: Tue, January 16, 2018
Markets | By Noel Gibbs

Oil hits highs as Opec members calls for output curbs to continue

Oil hits highs as Opec members calls for output curbs to continue

Oil markets had been well supported by production cuts led by the Organisation of the Petroleum Exporting Countries (OPEC) and Russian Federation which were aimed at propping up crude prices.

"On the other end, broad undersupply through underperforming shale and a firm commitment to holding the petrostate production cuts could lead to ongoing inventory declines to even tighter levels... meaning front month Brent prices could move firmly into the $70-80 range, even without supply disruptions."
Crude demand will expand by about 1.5 million barrels a day in 2018, OPEC Secretary-General Mohammad Barkindo said at a conference in Abu Dhabi. But the Reuters average is not shared by the US Energy Information Administration (EIA) and in its latest report predicts prices of WTI to average $55.33 and $57.43 a barrel in 2018 and 2019, respectively.

But in the last month or so, prices have been rising and as I write the Opec Basket is at $67.38 and Brent at $69.16 and the earlier expected range forgotten.

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According to the Chronicle, a production cut by world oil leaders helped the price to remain stable past year, but President Trump's series of disruptive moves in world politics could threaten such stability.

Oil reached new highs in London as Opec members called for output curbs to continue, allaying concerns that the recent rally could weaken their commitment.

The U.S. government bond sell-off pushed yields on the benchmark 10-year Treasury bonds to a 10-month high at above 2.5 percent.

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As Asian demand for crude oil and petroleum products increase, supply considerations to transport crude oil to Asia are increasingly part of the price formation for global crude oil benchmarks.

The past seven years were both very exciting, and very hard for the global energy markets.Today's market faces two key challenges, both the product of human innovation and technological advancement.The first is the challenge faced by oil producers to rebalance the market amid new supplies from unconventional sources due to new and improved techniques to unlock them.The second challenge, one that is still developing, involves new automobile technology as world leaders race to ban combustion engines in favor of electrical vehicles.The first challenge is the most immediate. Add to that the shutdown of a 0.4 mbd pipeline in the North Sea and a reduction of 0.29 mbd in USA crude oil production in the last few days of 2017 and first week of 2018. The rally will essentially stop when the hedge funds stop buying. "Opec compliance remains a big factor to watch". ANZ bank said the jump came "as shale producers quickly reacted to the strong rise in prices in 2018". That's not especially surprising given the vagaries of the crude oil market. Speaking to CNBC, the United Arab Emirates' energy minister, Suhail al-Mazrouei said: "I am expecting that this group of countries that stood and have become responsible for helping the market to correct, (that) there is a very good chance that they could stick together and put a shape around that alliance".

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