Oil prices rise on signs of tighter market
Analysts say Opec would have to extend output cuts to complete the rebalancing of the market, while possible fresh US sanctions on Iran could take out more supply
Singapore — Oil prices rose on Friday as both US crude production and inventories declined, pointing towards a tightening market.
Strong Chinese oil import data also supported crude prices, traders said.
With the Organisation of the Petroleum Exporting Countries (Opec) leading a production cut, analysts said that global oil markets were now broadly balanced after years of oversupply.
US West Texas Intermediate (WTI) crude futures were trading at $50.88 a barrel at 3.50am GMT, up 28c or 0.6% from their last settlement.
US crude inventories dropped 2.7-million barrels in the week to October 6, to 462.22-million barrels, the Energy Information Administration (EIA) said late on Thursday.
Crude production slipped by 81,000 barrels a day to 9.48-million barrels a day.
In international markets, Brent crude futures were at $56.51, up 26c or 0.5%.
Strong Chinese oil imports, which averaged 8.5-million barrels a day between January and September, also supported prices, traders said.
September’s imports were slightly over 9-million barrels a day, solidifying China as the world’s biggest importer.
“The rebalancing of the oil market has made significant progress over this time, although there is still some way to go to get back to the five-year average,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.
Bernstein Research said it expected fuel inventories to continue falling, although Opec would need to extend the cuts beyond the current expiry date in March 2018 to further reduce excess stocks.
“Opec will not achieve normalised inventory levels before cuts expire at the end of March,” Bernstein said, but “we believe an extension of cuts through 2018 should allow inventories to reach normalized levels before the end of 2018”.
Opec and other producers including Russia have been restraining output since January. The pact to cut production is set to expire by the end of March 2018, and there are discussions for an extension.
Traders said they were awaiting a decision later on Friday by US President Donald Trump on whether to continue to certify the 2015 Iran nuclear deal.
Trump is expected not to certify the agreement, which has to be re-certified every 90 days and is due for renewal on Sunday.
The step would not withdraw the US from the deal but would give Congress 60 days to decide whether to impose new sanctions.
“US sanctions could cut off a lot of Iranian oil trade finance,” FGE president Jeff Brown told Reuters this week.
“Last time we saw this, it cut off 1-million barrels a day of supplies. I don’t think it’d be that big this time round, but it would still be significant,” said Brown.