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Oil prices sink on IEA warning on balance
by Daniel J. Graeber
Washington (UPI) Aug 11, 2017

OPEC demand forecast, war drums drive oil prices higher
Washington (UPI) Aug 9, 2017 - Even with higher OPEC production, signs of a narrowing gap between supply and demand, and rising geopolitical tensions, pushed oil prices higher Thursday.

Economists at the Organization of Petroleum Exporting Countries reported total group production increased 173,000 barrels per day to 32.87 million barrels per day in July, its highest level of the year. Strong production figures have been a mounting concern for traders monitoring the OPEC-led effort to balance the market with coordinated production declines.

OPEC's report followed U.S. data that show production declined and the level of crude oil inventories moved lower.

"The large drop in U.S. inventories is showing clearly that OPEC production cuts are starting to work," Phil Flynn, a senior market analyst for the PRICE Futures Group in Chicago, said in a daily emailed newsletter.

Global oil inventories remain above the five-year average, indicating the market is still lopsided. OPEC in its latest month market report said it expected global oil demand to increase, with the 2018 forecast moving higher by 1.28 million barrels per day. Though OPEC production levels were higher, output from non-member states declined by 28,000 barrels per day and should decline another 42,000 barrels per day next year.

Crude oil prices were moving sharply higher before the opening bell on Wall Street. The price for Brent crude oil was up 1.5 percent at 9:20 a.m. EDT to $53.51 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 1 percent to $50.07, regaining its hold above the psychological level of $50 per barrel.

Part of the increase could be due to escalating tensions between the United States and North Korea. With Pyongyang saying the U.S. territory of Guam was a potential target, U.S. Defense Secretary Jim Mattis warned North Korea that it's grossly outmatched.

"It must be noted that the combined allied militaries now possess the most precise, rehearsed and robust defensive and offensive capabilities on Earth," he said in a statement.

On the economic front, oil prices were unmoved by a report that first-time jobless claims in the United States, the world's largest economy, were 3,000 higher than the previous week. The U.S. Labor Department reported the previous week's claims were revised higher by 1,000, though the less-volatile four-week moving average dropped 1,000 from last week.

Elsewhere, OPEC members continue their effort to reign in member-state production. Saudi Arabia and Iraq, the No. 1 and No. 2 producers in the group, respectively, stressed their agreement to work to a balanced market. Saudi Arabia's gains in production last month, however, nearly offset the decline from Iraq.

Crude oil prices drifted lower early Friday after a report from the International Energy Agency said the markets were balancing, but it's a stubborn process.

Oil prices rallied early in the Thursday session after the August report from the Organization of Petroleum Exporting Countries showed global demand on the rise, while production from non-member states inched lower. Gains in crude oil prices were quickly erased, however, after Russian oil producer Gazprom boasted of strong production and hinted at a possible acceleration.

Russia is the largest contributor to an OPEC-led effort to balance the market with production declines among non-member states. OPEC economists estimate Russian crude oil production will increase about 1 percent from the expected 2017 average to around 11.24 million barrels per day next year.

The International Energy Agency reported the market was moving toward balance, but global crude oil inventories are still above the five-year average for inventories in the Organization for Economic Cooperation and Development.

"As an exercise, if OECD stocks fell by 500,000 barrels per day until the end of first quarter 2018, when the current output agreements expire, they would still be about 60 million barrels above the five-year average," it reported.

The price of Brent crude oil was lower than Thursday's close by 0.35 percent at 9:20 a.m. EDT at $51.71 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was down 0.4 percent to $48.39 per barrel, after opening the session Thursday slightly above $50 per barrel.

The OPEC-led effort is offset in part by some of its own member states. Libya and Nigeria are two members exempt from the agreement on national security grounds, while Iraq has stubbornly agreed to play along.

The IEA reported there would be more confidence in the effort if more parties to the agreement showed a stronger level of resolve. Nevertheless, the market is rebalancing.

"If re-balancing is to be maintained, the producers that are committed to seeing the task through to March 2018 need to convince the market that they are in it together," it warned. "It is not entirely clear that this is the case today."

The report came as Saudi Arabia said it was ready to send more oil to Iraq, after both sides agreed earlier in the week to uphold their commitments.

Meanwhile, the war risk to the market escalated with U.S. President Donald Trump stating through his official Twitter account that military solutions are "locked and loaded" should North Korea act out.

Ongoing crises in OPEC-member Venezuela continue to weigh on the minds of traders.

U.S. shale player Sanchez boosted by second quarter acquisition
Washington (UPI) Aug 9, 2017
U.S. shale exploration and production company Sanchez Energy said its output increased more than 40 percent over the first quarter of the year. Sanchez is one of the larger operators in the Eagle Ford shale basin in Texas and added more than 300,000 acres to its portfolio through a March acquisition from rival shale player Anadarko Petroleum. With the assets entrenched in its por ... read more

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