A surprise drop in US crude inventories and comments from Organization of the Petroleum Exporting Countries (OPEC) Secretary General Mohammad Barkindo about lower-than-expected US shale production growth in 2020 boosted crude oil prices on 14 November.
Brent futures rose 80 cents, or 1.3%, to $63.17 per barrel, while US West Texas Intermediate (WTI) crude gained 64 cents, or 1.1%, to reach $57.77, Reuters reported.
Barkindo was quoted as saying on 14 November there would likely be downward revisions of supply going into 2020, especially from US shale, adding that some US shale oil firms see output growing by only 300,000-400,000 barrels per day.
Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe on 14 November that the cost of US shale production is still high. “They brought the cost down a little bit but to be profitable on it, it’s still very marginable,” he said. Urquhart Stewart said shale production in the US must be close to maximum at the moment “because all the easy stuff I think has already been addressed. I can’t see that there will be a huge increase in production from here.”
US President Donald J. Trump said on 12 November Washington and Beijing were close to finalising a trade deal. Urquhart Stewart said a US shale gas export deal with China would benefit the US. “With all the other trade issues with China at the moment, it would be fascinating if they do manage to do a gas trade with them and the Americans would be delighted to do so because they would see it as much as anything else as a bargaining issue to have with China because, at the moment, it’s all one way and would love to have China on the hook as a user of shale gas. Would they weaponize at some stage in the future? The answer is: Yes, they could,” Urquhart Stewart said.
The American Petroleum Institute (API) reported on 13 November an unexpected drop in crude stockpiles by 541,000 barrels in the week to 8 November, against analysts’ expectations of an increase of 1.6 million barrels, Reuters reported.
Comments by US Federal Reserve Chair Jerome Powell that the US economy would see a sustained expansion with the full impact of recent interest rate cuts still to be felt also supported oil prices.
OPEC ministers are scheduled to gather on 5-6 December in Vienna to decide on the pact’s future. Barkindo said on 13 November it was too early to say if further output cuts would be needed.
Urquhart Stewart told New Europe OPEC and its allies, including Russia, will keep oil production steady for the moment, maintaining the production curbs of 1.2 million barrels per day that have been in place since January with the aim of supporting crude prices. The agreement runs to March 2020. “The global economy is weakening so I can’t see any reason to try and slow that up. They would happy to see the economy progress at this sort of level for the time being so no time to rock the boat,” he said.
The president of Russian oil major LUKOIL, Vagit Alekperov, was quoted as saying he is operating under the assumption that OPEC and its allies will maintain their production cuts beyond March. LUKOIL will keep its production stable in 2020 compared to this year, he added.
Urquhart Stewart forecast that oil prices would stay at this level until the end of the year. “I see very little reason to see them push up at the moment because the global economy is doing well but it’s slowing and therefore it would impact on demand and therefore it would impact on future prices especially,” he said.
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