Oil markets edged up on Tuesday as the Forties pipeline outage in the North Sea and voluntary production restraint led by OPEC supported prices, although soaring output in the United States put a cap on gains.
US West Texas Intermediate (WTI) crude futures were at $57.35 a barrel at 0757 GMT, up 19 cents, or 0.3 per cent, from their last settlement. International Brent crude futures were at $63.56 a barrel, up 15 cents, or 0.2 per cent. There has been little price movement in recent trading, with Brent moving within a $63.00 to $63.91 per barrel range since last Friday.
According to traders, some upward pressure was taken off after an oil worker strike was called off in Nigeria. Despite this, crude has been generally supported by the ongoing Forties pipeline system outage in the North Sea, which provides crude underpinning Brent futures.
“The Forties pipeline closure will continue to put a floor under Brent crude,” said Jeffrey Halley of futures brokerage Oanda.
Further price support has been coming from voluntary supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC producers, including Russia. The cuts were introduced in January and are currently set cover all of next year, but Russia's Rosneft said on Monday they could be extended beyond 2018.
As a result of the cuts, oil inventories are falling globally. “OECD industry inventories declined by 40 million barrels in October to 2.92 billion barrels, while global inventories decreased by 61 million barrels to 5,48 billion barrels. This clearly indicates that the market in 4Q17 is in material (1 million barrels per day) supply deficit,” Bernstein Energy said.
“Global inventories now stand at less than 56 days (of demand) ... With OPEC's decision to extend cuts, we expect that OECD inventories will reach the 5-year trailing average (2.83 billion barrels) by 3Q18 and long-term average (2.7 billion barrels) by year-end 2018,” Bernstein added.
Threatening to undermine the OPEC-led efforts to tighten markets is US crude production, which has soared by 16 per cent since mid-2016 to 9.8 million bpd, fast approaching that of top producers Russia and Saudi Arabia, which are currently pumping around 11 and 10 million bpd, respectively.
US shale production alone is expected to rise by 94,000 bpd in January, marking a 13th consecutive month of increases, the US Energy Information Administration had said late on Monday. Overall, the EIA said it expected US production to hit a record 10.02 million bpd in 2018, on par with Saudi Arabia and not far off top producer Russia, which pumps around 11 million bpd.