Weekly benchmark oil futures finished the year 2017 at their highest levels since December 2014. Brent gained around 2% during the last week of 2017 while the WTI increased by more than 3%, as bullish factors were still dominating the market. The trading activity during the last week was particularly thin due to the Christmas holiday and end-of-year vacations.
The main factors supporting oil futures postivitely were: strong oil demand especially from the US and China, US crude oil stocks continuous fall combined to a favourable US energy complex, the oil pipeline disruptions in the North Sea and Libya, the Opec+ deal extension, and a growing global geopolitical risk.
Among the bearish factors we find mainly: the monthly US crude oil production record in October, a firm US oil rig count, the rise in US gasoline and distillate stocks, expected restart of the Forties and Libya oil pipelines planned for early January 2018, and some profit taking as well.
US crude oil inventories continued to fall in the week to December 22, with another decline of 4.6mn barrels. While, US gasoline & distillate stocks rose modestly by 0.6 and 1.1mn barrels respectively. US crude production hit a new monthly record of 9.64mn barrels per day (mbpd) in October 2017, which makes it the highest monthly average since 46 years (Reuters).
The US refinery utilisation rate reached 95.7% (the highest in December since 1998), driven by domestic and export demand and the Brent-WTI favourable spread.
According to BHGE data, the US oil rig count remained unchanged at 747 in the week to December 29, which is 42% or 222 rigs above the same figure of last year.
The global oil demand showed signs of strong growth in the end of 2017. In the US, October’s oil demand increased by 0.8% to 19.8 mbpd. Of which, gasoline demand rose by 2.8% to 9.3 mbpd compared to the same period of 2016. In China, a first batch of crude oil import quotas for 2018 were issued for a total of 121.3mn tonnes. China’s imports are currently assessed at around 8.5 mbpd, which make them the largest worldwide, and they are forecasted to hit a new record in 2018 with new refining projects to be brought on stream (Reuters).
Benchmark oil futures prices gained in 2017 about 17% for the Brent and 12% for the WTI, for a yearly average of $55 and $51 per barrel respectively.
The current new daily oil futures levels were not seen since mid- 2015, whereas for the weekly levels the higher figures date back to the end of 2014 for both benchmarks. These net gains not only indicate that the global crude oil glut is clearly shrinking, but also that the global oil market is really tightening. If global oil inventories will continue their decline, then most likely this trend will continue in 2018.
Since the second quarter of 2016, oil futures prices were range-bound around $45-$55, but since September of 2017 oil prices seem to have unlocked a higher price territory with a price floor or bottom ranging between $50 and $60, which is needed to boost shale drilling and to have stronger balance sheets. However, the new price territory is accompanied with a higher volatility which is most likely to expand to around $15 – $20, depending on the evolution of not only market fundamentals but also on some temporary factors.
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