Stanchart raises crude oil price forecasts for 2018, 2019

Although this technology had been known for many years, high prices combined with new production techniques soon led to an unprecedented surge in USA oil production.

Brent crude oil rose for a sixth day yesterday to hit its highest since November 2014 at over $75 per barrel.

US West Texas Intermediate (WTI) crude futures were at US$69.17 a barrel, up 53 cents, or 0.8 per cent, from their last settlement. However, higher oil prices have caused an immediate surge in mining investment, as more drilling rigs have been deployed, and those firms associated with oil production have seen revenue boom. After all, President Trump shared his unhappiness with higher oil prices last week, and he must be aware of what a fresh round of sanctions against Iran would do to these same too-high prices.

Another question that needs asking is whether it is really demand that driving oil prices right now.

Brent crude futures marked $75.27 a barrel yesterday.

But with steep declines in output from OPEC member Venezuela as a result of unrest and mismanagement, and continued curbs on production by other OPEC and non-OPEC members, global production is failing to keep pace with consumption.

The Bloomberg Dollar Index rose as much as 0.8% for a fifth session of gains, keeping a lid on crude prices.

“Trump does not understand the situation in the oil market, where it is production output that forms the balance of supplies and demand and, consequently, the price”.

Analysts say higher oil prices will also compel the U.S to further ramp up production from its shale fields. The rising rig numbers point to further increases in USA crude production, which is already up by a quarter since mid-2016 to a record 10.54 million barrels per day (bpd).

The SPR now contains about 665 million barrels of oil, enough to cover about 100 days of net imports, up from around 90 days in January 2017. We extract and use the cheapest fuels first and then dig deeper and only go after the more costly ways to extract oil as selling prices move higher.

But new reports of falling crude inventories in the United States and creeping concerns that President Donald Trump will slap sanctions on Iran propped prices back up.

According to API, U.S. gasoline inventories fell for the week ending April 20, to the tune of 2.724 million barrels. These prices are approximately 50% higher than they were last August.

Both Russia and Saudi Arabia would like to continue their partnership beyond the termination date of their production deal this year. Indeed, despite the surge in USA oil production over the previous year, the U.S.is still a significant net importer. Friday’s data from Baker Hughes (BHGE) showed that the number of active USA rigs drilling for oil (http://www.marketwatch.com/story/baker-hughes-reports-a-rise-in-us-oil-rig-count-for-third-straight-week-2018-04-20), a key metric of activity in the sector, rose for a third straight week.