Standby for a possible sell off in oil as US production hits all time highs and the emerging possibility of Russia abandoning the 1.8 million barrels a day production cap deal with Saudi Arabia and the rest of OPEC.
If Russia was to abandon the cap deal at the OPEC and other producers meeting next week (November 30) then oil prices will plunge to below $US50 a barrel for US crude and well under $US55 a barrel for Brent crude, and then continue sliding if there is nothing done to save the deal.
That’s the sense of the outlook for oil despite a 2% plus jump in oil prices on Friday after a big US pipeline from Canada was shut because of a leak.
Brent crude futures rose more than 2% to $US62.86 a barrel after TransCanada shut down its 590,000 barrel a day Keystone pipeline after a leak in the American state of South Dakota on Thursday.
But that rise couldn’t erase earlier weakness and Brent still ended the week down 1.3% for the week – its first such loss in six weeks.
In the US West Texas Intermediate December futures ended the week down is set to end the week 0.4% despite clocking up a 2.6% rise to $US56.55 on Friday.
That was after oil prices hit a 28-month high the week before last as tension in the Middle East and uncertainty caused by the so-called corruption crackdown on Saudi princes and businessmen saw a round of speculative buying.
The weekly rig use report from Baker Hughes showed no change on the 738 rigs actively looking for oil from the week before. But the total number of US rigs last week rose 8 to 915 as gas rigs in use rose.
Oil prices eased this week after the International Energy Agency warned that US oil output until 2025 will be the strongest seen by any country in the history of crude markets.
Compounding the pressure are emerging concerns that Russia might not support Opec’s plans to extend production cut when the cartel meets at the end of the month.
Russian oil companies and the government met in Moscow on Friday to discuss the cap and whether to extend it to the end of 2018 from the end of next March. Some reports suggest the Russian industry is feeling the pinch of shouldering the second biggest share of the cut after the Saudis.
Another factor last week was the warning from the IEA that the global surplus this year and next will take longer to disappear if oil prices remain around $US60 a barrel for a long period of time.
It said warmer weather this northern winter and the US production surge would mean consumption will be lower than expected and production a bit higher than previously forecast.
Not helping sentiment for oil was news on Friday that US crude-oil production is indeed booming.
The American Petroleum Institute (API) said US crude output was up 7% in October, from a year earlier, to average 9.4 million barrels a day.
That was the highest October output since 1972 which was less than a year before the first oil shock with the 1973 mid east war.
Production has now held above 9 million barrels for nine months in a row, the API reported.
And it also said that total petroleum deliveries, an implied demand indicator, climbed by 1.1% in October from a year earlier to average 19.9 million barrels a day—the highest October deliveries in 10 years.
Total US petroleum imports (includes diesel, gas and other products) fell 0.8% from October 2016 to average just above 9.6 million barrels a day in October. These were the lowest imports since November 2015.
For year-to-date, total petroleum imports are up 1.6% compared with year-to-date 2016. Year-to-date, crude imports were up 2.2% compared with year-to-date 2016.
