Crude oil prices rally for a second straight day, with WTI +1.4% at $52.98/bbl, supported by reports that key OPEC members were cutting production as promised and on forecasts of strong demand growth in China.
Saudi Energy Minister Khalid al-Falih said today that the kingdom has cut production to its lowest in nearly two years, and that the OPEC deal would accelerate the rebalancing of the global oil market.
Iraq's oil minister says his country has cut its oil exports by 170K bbl/day and was cutting them by another 40K bbl/day this week, and Kuwait's oil minister says his country has ct its oil output by more than it promised under the OPEC deal.
Crude prices also are helped by China's forecast for domestic crude demand to reach a record 594M tons this year (~12M bbl/day) and net crude imports to rise 5.3% to 396M tons (~8M bbl/day) in 2017.
U.S. crude oil climbs 3.2% to $52.45/bbl after EIA data showed that refiners processed a record amount of crude and that supplies fell at the Cushing, Okla., storage hub.
U.S. refiners churned 17.1M bbl/day of crude into fuel last week, the highest weekly figure going back to 1982, while Cushing stockpiles, which have been rising in recent weeks, fell by 579K barrels.
Prices recovered after initially falling in reaction to a higher than expected rise in total crude oil inventories to 4.1M barrels, and U.S. production jumped to more than 8.9M bbl/day during the week, the highest read since April.
But analysts say the stockpile gains largely were driven by an increase in oil imports, which rose to their highest level since 2012 as shipments of crude that were delayed at the end of last year for tax purposes are starting to appear.
Aramco increased its official pricing for Arab Light crude to Asia by $0.60/bbl to $0.15 below the regional benchmark; it had been expected to raise the pricing for shipments of Arab Light by $0.50, according to a Bloomberg survey.
Buyers in the U.S. will pay premiums that are $0.20/barrel higher for both Extra Light and Light grade crudes in February, while pricing for Medium and Heavy blends remains unchanged.
Brent crude +0.8% at $56.94/bbl; WTI crude +0.8% at $53.70.
Goldman Sachs expects Brent crude oil prices to peak at $59/bbl by the summer as oil producers mostly stick to their production cut agreements and U.S. shale drillers ramp up output.
Goldman sees OPEC and non-OPEC nations enacting 84% of their agreed-upon cuts, citing the incentive among lower-cost producers to "fast-forward the normalization in inventories."
Inventory normalization "generates backwardation, which removes hedging gains from high-cost producers and helps low-cost producers grow market share," the firm writes.
However, U.S. shale activity has picked up strongly, with the U.S. horizontal oil rig count at a 13-month high, and Goldman expects U.S. shale producers to continue to ramp up activity at current price levels.
Brent currently +1.3% at $56.20; WTI +1.4% at $53.07.
Crude oil futures have reversed course and moved sharply lower after touching their highest levels in 18 months, as concerns apparently begin to crop up over implementation of the crude oil output caps by OPEC and non-OPEC producers.
While no single catalyst seems responsible for the reversal, recent reports suggest that Libya and Nigeria, who were exempt from the cuts, have been making progress in restoring output faster than expected, and Kurdistan, which has not agreed to participate in the output cuts, reportedly is ramping up oil sales; a strong dollar and possible new year positioning dynamics also may be adding to the move.
“Indications of cheating - a major issue in past deals - would prove to be a significantly bearish factor,” says Schneider Electric analyst Robbie Frasier.
At least part of the reason for the move was technical, says Tyler Richey, noting "there was a roughly $1 ‘gap’ between Friday’s primary session close and this morning’s 9 a.m. open, and fast money traders chased it lower to ‘fill the gap.’”