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OPEC Export to US Declining
January 22 2018, 08:30 | Alonzo Simpson
Goldman Sachs raises oil price forecast to $57.50 per barrel
Following last week's selloff, oil prices hit a two-week high on Thursday, after the EIA data showed that US weekly crude oil production dropped to 9.250 million bpd in the week to June 23, from 9.350 million bpd the previous week.
Brent crude, the global benchmark, was trading 0.04 per cent lower at $48.75 a barrel.
West Texas Intermediate for August delivery fell 4 cents to $46 a barrel on the New York Mercantile Exchange at 10:59 a.m.in London.
On Friday, data from U.S. energy services firm Baker Hughes revealed drilling activity for new oil production dropped by two rigs.
Libya's oil production has climbed to more than 1 MMbpd for the first time in four years, further complicating OPEC's struggle to regain control of the oil market. While oil production in the U.S. may plateau in the near term and help prices stage a modest recovery, we believe that higher Non-Opec output coupled with production gains in Libya and Nigeria will cap prices around $53-55.
Against market expectations, OECD total oil inventories are still above three billion barrels and the recovery in Libyan and Nigerian supplies, coupled with a fast return of USA shale, will now likely prevent steep stock draws ahead.
Goldman Sachs made some headlines when it chose to dramatically lower its oil price forecast for 2017, dropping its prediction by $7.50 per barrel to $47.50. Front-month prices gained 5.2 percent last week.
Rising U.S. production has undermined some of the impact of the OPEC-led cuts. Production had risen for 12 consecutive weeks since February 17 by a cumulative of over 300,000 b/d as part of a trend that has fuelled an increasingly bearish sentiment and big sell-offs in the crude market.
However, there's no denying that the USA still remains awash with excess oil that is derailing bulk of the OPEC-led cuts aimed at rebalancing the market. The day before the holiday, AAA reports that regular unleaded averages a mere $2.23 per gallon nationwide: The lowest price for early July since 2005. The nearest contract at $55 or higher is June 2024 at $55.07. American production has dipped slightly in recent weeks as producers have scaled production back slightly due to flagging oil prices, but the outlook for shale over the rest of the year is still quite strong. The investment bank cited higher-than-expected production from Nigeria, Libya and a swift rebound in USA shale output.
Experts also believe that there is a clear risk that inventory normalization will not take place until the end of March next year when the OPEC cut will come into force.