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Oil Above $51 as Rising Output Threatens to Slice Into Demand

Bloomberg logoBloomberg 10/11/2017 Jessica Summers

(Bloomberg) -- Oil closed above $51 a barrel as traders weighed OPEC’s optimistic outlook for crude demand against the specter of booming production from Texas to Tripoli.

Futures ended the session 0.8 percent up in New York after alternating between gains and losses. OPEC announced that 2018 demand will be about 200,000 barrels higher than previously predicted, and said output caps adopted by most producers are trimming a global glut. Yet at the same time, the Energy Information Administration raised its forecast for U.S. production in 2018. Focus is shifting to the release of weekly inventory data, with U.S. crude stockpiles seen declining.

”A lot below $50 and producers do produce a lot less, but conversely, much over $55, there is going to be a lot of extra production. We’re range-bound, but it’s $50-$55 and not $45-$50. We’re kind of in this inflection point,” Jay Hatfield, a New York-based portfolio manager at the InfraCap MLP exchange-traded fund, said by telephone. “The inventory report will be critical at this point.”

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Oil has advanced more than 4 percent this week on speculation the Organization of Petroleum Exporting Countries, Russia and other parties to the historic 2016 production accord may extend the deal beyond its March expiration. Saudi Arabia warned it will cut the amount of crude available for sale next month, while OPEC Secretary-General Mohammad Barkindo signaled the group is looking to expand the number of nations participating in the deal.

“Oil is having a hard time finding its course,” said Rob Thummel, managing director at Tortoise Capital Advisors LLC, which handles $16 billion in energy-related assets. “There are a lot of potential near-term positive catalysts out there for the oil market, but none of them have 100 percent certainty.”

West Texas Intermediate for November delivery rose 38 cents to settle at $51.30 a barrel on the New York Mercantile Exchange, the highest level in more than a week. Total volume traded was about 15 percent below the 100-day average.

Brent for December settlement rose 33 cents to end the session at $56.94 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.34 to December WTI.

The gasoline crack spread, a rough measure of the profit from refining crude into gasoline, jumped 2.3 percent to settle at $16.29 a barrel. Delta Air Lines Inc.’s refinery in Pennsylvania was said to be shutting some units down after a fire on Wednesday, according to a person familiar with operations. The fire occurred on a platformer and the refinery is operating, the company said.

U.S. Inventories

OPEC will need to supply 33.1 million barrels a day next year, about 350,000 more than it pumped last month, the group said in a report on Wednesday. Meanwhile, the EIA’s monthly Short-Term Energy Outlook showed U.S. output rising to average 9.92 million barrels a day in 2018. The agency revised global demand lower for next year.

A Bloomberg survey showed that U.S crude stockpiles slid by 2.4 million barrels last week, while distillate inventories probably fell by 1.93 million. At the Cushing, Oklahoma, pipeline hub, inventories likely increased by 1.8 million barrels, according to a separate forecast compiled by Bloomberg.

We’d normally be seeing crude builds this time of year as refineries undergo maintenance, yet due to disruptions caused by Hurricane Harvey, inventory draws might be likely, Thummel said. The market is waiting to evaluate the inventory data, also leading to mixed-price action, he said.

The industry-funded American Petroleum Institute will release its inventory data on Wednesday, while the Energy Information Administration is scheduled to disclose its tallies on Thursday.

Oil-market news:

  • Pierre Andurand’s hedge fund trailed the oil-price rally last month, posting a 2.4 percent gain compared with the almost 10 percent boost for Brent crude, according to people familiar with the performance.
  • Compliance with crude-output cuts by the OPEC members participating in curbs increased to 97 percent in September versus a revised 95 percent in August, according to Bloomberg calculations from the producer group’s secondary source estimates.

--With assistance from Ben Sharples Rakteem Katakey and Grant Smith

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Stephen Cunningham, Jim Efstathiou Jr.

©2017 Bloomberg L.P.

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