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Oil prices extend gains on compliance with output cuts

Oil prices extend gains on compliance with output cuts

"Oil prices have come under pressure because of rising oil production in the USA, together with a marginal rebound in the US dollar index".

While there are fears that USA production is growing too quickly and could undermine oil prices by creating a new glut, global oil inventories are still down.

Traders are watching the spread, or difference, between Brent and WTI closely as the discount on the US benchmark makes it more competitive in some markets, incentivizing exports.

The conclusion does not change: the USA production growth in this category has been equally robust. One was the boom in shale production, which spawned a multitude of small producers that sought to hedge profits by trading futures contracts. From 2000 through 2010, American production fluctuated between 4 and 6 million barrels per day, federal data show, before beginning a steady uptick at the beginning of this decade. That compares to just 590,000 bpd in 2016.

"Oil prices have come under pressure because of rising oil production in the USA, together with a marginal rebound in the US dollar index". "The decline in excess inventories was fast-forwarded in late 2017 by stellar demand growth, high OPEC compliance, heavy maintenance as well as collapsing Venezuela production".

A weaker Dollar will also help to increase demand for USA crude oil.

London Intercontinental Exchange (ICE) is a London-based options exchange and a leading operator of global exchanges founded in 1982.

Crude oil prices turned lower at the start of the week. Brent crude futures and options alone contributed almost $300 million to ICE's revenues in 2016.

Jeffrey Sprecher, chief executive at ICE, dismissed the notion that WTI's global influence is rising versus Brent, calling it "a red herring".

With the foundation laid for higher prices, the next move is up to the hedge funds.

"U.S. crude oil production has increased significantly over the past 10 years, driven mainly by production from tight rock formations including shale and other fine-grained rock using horizontal drilling and hydraulic fracturing to improve efficiency", the report stated. Therefore, investors will be watching today's U.S. Non-Farm Payrolls report very closely.

The energy industry has grown more efficient after cutting costs in response to the plunge in crude oil prices in previous years, so they are now in a better position to improve revenue at lower oil prices.

As a result of efficiencies in operations, Shell is now making as much money with oil at an average of US$54 a barrel as it did when the price was around US$100 a barrel.

New York's NYMEХ (New York Merchantile Exchange) is a United States futures market founded in 1882.

USA crude, meanwhile, is flowing into global markets. Europe's and North America's share of demand has declined. Traders looking to ship shale oil economically to Asia can bring smaller cargoes from around the Americas to fill up a supertanker in the Caribbean for the long journey. Offshore oil projects authorized well before the oil bust began in 2014 are producing more oil from the deepwater Gulf of Mexico.

As the price of crude rises, it is drawing idle rigs in the United States back into operation.

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