SMM: oil prices were generally weak on Thursday due to sluggish U. S. economic data, an increase in EIA crude oil stocks and continued uncertainty about the international trade situation.
Although the EIA monthly report in early October showed that US production fell by 276000 barrels per day in July, EIA pointed out that this was only a temporary interruption caused by hurricanes, and that as offshore oil fields accounted for a smaller share of US production, the likelihood of disruption to US production by hurricanes is expected to decline further. In fact, EIA data released every week on Wednesday showed that U. S. crude oil production reached a record 12.6 million barrels a day. EIA expects U. S. crude oil production to climb to 13 million barrels a day by the end of 2019.
In the face of weak global demand, this undoubtedly increases the risk of oversupply in the oil market. The world's largest crude oil trader believes oil prices will be slightly below current levels in 2020, with Brent crude oil in the range of $50 to $60.
However, analysts also said that as refiners gradually return to production capacity at the end of the year, it may help to digest inventories for a short period of time, so there is still room for oil prices to rebound slightly by the end of the year.
EIA believes that U. S. crude oil production will rise to 13 million barrels a day by the end of 2019, and that hurricanes will have less and less impact on U. S. production.
The latest monthly EIA report shows that U. S. crude oil production fell 276000 barrels a day in July 2019, the biggest drop in more than a decade as a result of hurricanes.
But EIA said the decline was temporary, and given that the main growth area for U. S. production is far from the Gulf of Mexico, U. S. crude oil production is expected to continue to increase for the rest of 2019.
In fact, EIA data released on Wednesday showed that US crude oil production rose to a record high of 12.6 million barrels a day, suggesting that US production is still in the process of growing, even though the number of US crude oil wells has fallen for the seventh consecutive week.
A key factor in the decline in U. S. crude oil production in July was the forced shutdown of crude oil production platforms off the coast of the Gulf of Mexico caused by Hurricane Barry, which reduced production in the region by 332000 barrels a day. According to (BSEE), the Department of the Interior's Safety and Environmental Law Enforcement Agency, 283 offshore oil and gas platforms in the Gulf of Mexico, or 42 per cent of the total, were evacuated in mid-July because of Barry's proximity.
BSEE estimates that about 70 per cent of crude oil production in the Gulf of Mexico has been shut down. But production in oil-producing areas other than the Gulf of Mexico increased by a total of 56000 barrels a day, partly mitigating the interference.
Historically, much of the monthly decline in U. S. crude oil production is caused by hurricanes, which led to a drop of 1 million barrels a day as a result of two hurricanes in September 2008.
Hurricane Barry, by contrast, occurred in the relatively early stages of the hurricane and was relatively small for total U. S. crude oil production. With the growth of onshore crude oil production in the United States, the share of crude oil production in the Gulf of Mexico has fallen from a high of 29% in 2009 to 16% in 2018.
This means that with the smaller share of production in the Gulf of Mexico and the further expansion of Permian production in the United States, the impact of seasonal hurricanes on U. S. production is expected to be smaller and smaller.
Based on this, EIA expects US crude oil production to continue to grow steadily for the rest of 2019, reaching 13 million barrels per day in December 2019, while average production will reach 12.3 million barrels per day in 2019 and 13.2 million barrels per day in 2020.
World's largest crude oil trader: oil prices are slightly below current levels in 2020, with weak demand still the main factor
As the EIA raises its US production forecasts further, the market is once again turning its attention to global demand for crude oil. Wihtol, the world's largest oil trader, said oil prices were likely to remain at their current levels until 2020 unless there were clear signs of improvement in international trade.
A string of recent data show that shrinking manufacturing activity in Germany and the US, coupled with a lack of progress in international trade negotiations, has hit oil demand growth and depressed oil prices.
Jeremy Weill, head of Wihtol, told an oil and currency conference in London: "We are bearish in the short term."
Will said that in the current international trade environment and the strong dollar, the market sentiment is not good. There is room for further downside in the short term, but it is likely to recover in the second half of next year.
When asked about his price forecast for Brent crude in a year's time, will said it was likely to be slightly lower than the current price level.
Standard Chartered Bank estimates that global demand for crude oil may already be at its lowest level since the 2008 financial crisis. As of July, crude oil demand had fallen for the third month in a row for the first time in a decade.
The head of Gunvor Torbjorn Tornqvist, a Swiss-based trader, also said he expected oil prices to remain close to current levels next year, given market fundamentals. If crude oil prices are expected to rise, this will put more pressure on the OPEC and its major producing allies to implement bigger production cuts.
"I think the market wants to test the market's determination next year, and I don't think it's enough to maintain the current production reduction agreement," Tornqvist said. In addition to too many delays in production quotas within OPEC, large supplies from non-OPEC oil-producing countries are coming, so OPEC is forced to make changes.
Based on this, Wihtol believes that the average price of Brent crude oil will remain between $50 and $60 in 2020.
But resuming production at refineries by the end of the year will help digest inventories or provide an opportunity for a short-term rebound in oil prices
Refinery crude oil production fell 361000 barrels a day and refinery utilization fell 0.7 per cent to its lowest level since October 2017, according to EIA data released on Wednesday.
Matt Smith (Matt Smith), director of commodity research at ClipperData, said that despite the decline in net imports, the decline in refining activity had led to an increase in oil stocks. Net crude oil imports in the United States fell by 601000 barrels a day last week.
However, Platts Energy Analysis said that as crude oil stocks tend to decline in November and December, which helps offset the current bearish market sentiment, Brent crude oil prices are expected to reach $65-70 a barrel by the end of the year.
Platts said crude oil demand was expected to surge by nearly 5 million barrels a day in November as refineries gradually returned from the rest period, helping to digest inventories in a short period of time.
Analysts point out that refineries gradually resumed production in November after a short period of time to boost oil prices. But this is ultimately seasonal, with demand still dominant in the long run, and if the global economic outlook remains weak, especially as international trade concerns continue to simmer, oil prices will eventually return to decline after a small rebound.
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