Oil holds near $61 as shale growth balanced by IEA supply view

By Alex Longley on 3/16/2018

LONDON (Bloomberg) -- Oil held above $61/bbl, paring the weekly loss, as investors weighed surging U.S. crude production against a warning from the International Energy Agency of an impending shortfall in global supplies.

Futures in New York rose slightly Friday but headed for a weekly drop of 1.1%. While U.S. crude production jumped to 10.4 MMbpd last week, according to government data, the dire situation in Venezuela’s energy sector may exacerbate a worldwide supply deficit expected later this year, the Paris-based IEA said.

Oil has been trading in a tight range this month, with prices hovering around $60/bbl as rising U.S. output continues to stoke fears that a shale boom will limit price increases. Still, OPEC and allied producers are continuing production cuts in an effort to drain a global glut and help prop up prices. A robust global economy has also led banks including Goldman Sachs Group to project strong demand for oil this year.

“The market is probably less concerned about the rise in U.S. oil production because the global economy is doing quite well, so there is demand for the additional oil,” said Jens Pedersen, senior analyst at Danske Bank. “It seems like oil has found its feet following a volatile start to the year.”

WTI for April delivery traded up $0.16 at $61.35/bbl on the New York Mercantile Exchange. The contract is down $0.69 this week. Total volume traded was about 54% below the 100-day average.

Brent for May settlement rose $0.06 to $65.18/bbl on the London-based ICE Futures Europe exchange. The contract is down 0.5% this week. The global benchmark traded at a $3.77 premium to WTI for the same month.

The IEA raised its estimate for global oil demand growth by 90,000 bpd to 1.5 MMbpd in 2018 as a stronger outlook for developed economies offsets weakening expectations for emerging nations. Steady growth was also reflected in the API’s latest report showing U.S. oil consumption rose to the highest in 11 years even as crude production hit a new monthly record.

As a result of a worsening economic crisis in Venezuela, where output has fallen to the lowest since the 1940s, the market could tip from a glut into a shortage, the IEA said. OPEC is collectively cutting supply by almost 50% more than it intended, the agency said.

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