Oil prices high on expectations of USA inventory drains

Oil prices high on expectations of USA inventory drains

The market was bolstered modestly by data showing a sharp decline in US production last week.

Late Tuesday, the American Petroleum Institute reported total US crude oil inventories dropped a whopping 11.19 million barrels, blowing past the paltry 3.5 million barrel draw expected from commodity pricing group S&P Global Platts. On Friday, U.S. President Donald Trump is widely expected to deny a waiver on oil-related sanctions under the terms of the United Nations -led nuclear agreement, a decision that could shelve millions of barrels of Iranian oil on the European market. "But market participants could also use the sharp drop in production as an excuse to buy", said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany.

Oil prices posted gains in all the four past sessions this week.

Brent for March settlement advanced to $69.90 a barrel on the London-based ICE Futures Europe exchange at 11:28 Eastern time.

Oil prices have surged more than 13 per cent since early December, and there are indications of overheating. Oil traders have closely watched US crude production to see whether output gains from USA shale formations will surpass the 1.8 million bpd cuts.

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Much of the production growth will be concentrated in the Permian Basin, the largest US oilfield stretching across Texas and New Mexico, said John Staub, the EIA director of the office of petroleum, natural gas and biofuels analysis. A weaker dollar generally boosts oil, which is priced in the USA currency.

WTI and Brent soared to three-year highs on Tuesday before the data on the expectation that crude oil inventories would decline yet another week, along with EIA's updated forecast for oil demand growth that shows an increase over previous figures of 100,000 bpd.

The rally has brought out some concerns that the market could overheat, especially as USA production is expected to rise to new records.

US crude oil production is expected to hit 10 million bpd next month, behind only Russian Federation and Saudi Arabia.

The GHP now expects Houston to add 45,500 jobs in 2018, but it believes employment levels will stay flat among oil producers, based on recent oil-price forecasts by the Energy Information Administration. OPEC, along with non-members including Russian Federation, have extended through the end of this year a deal to cut supply by 1.8 million bpd.

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