Oil prices recovered from a one-week low yesterday as the International Energy Agency said oil markets were tightening even before cuts agreed by Opec and other producers took effect.
Oil prices have gyrated this year as the market’s focus has swung from hopes that oversupply may be curbed by output cuts announced by the Organization of the Petroleum Exporting Countries and other producers to fears that a rebound in US shale production could swamp any such reductions.
Benchmark Brent crude was up 50 cents at $54.42 a barrel by 1220 GMT after closing down 2.8 per cent in the previous session. US crude was up 40 cents at $51.48 a barrel, having dropped to a one-week low on Wednesday of $50.91.
The IEA said that while it was “far too soon” to gauge Opec members’ levels of compliance with promised cuts, commercial oil inventories in the developed world fell for a fourth consecutive month in November, with another decline projected for December.
It raised sharply its 2016 demand growth estimate, and said the data indicated that rising demand was slowly tightening global oil markets. Still, analysts said it was crucial that Opec and other producers cut output as promised, particularly as a resilient US shale industry threatened to add more barrels to the market.
“Discipline and strict adherence to the new quotas will be needed probably throughout 2017 and beyond to see the long-awaited and sustainable rebalancing finally arrive,” PVM Oil Associates analyst Tamas Varga said.
Opec has said its cuts would help balance the market and that its output had already fallen in December. But it also pointed to the possibility of a rebound in US output amid higher oil prices.
The head of the IEA, Fatih Birol, said in Davos, Switzerland, yesterday that he expected US shale oil output to rebound by as much as 500,000 bpd over the course of 2017, which would be a new record.
US data sent more mixed signals. American Petroleum Institute (API) data on Wednesday showed US crude stocks fell by 5.04 million barrels in the week to January 13, well above the expectations of a 342,000-barrel decline.
But the data also showed larger-than-expected, and potentially bearish, increases in stocks of gasoline and distillates.