HardAssetsInvestor

Written by Sumit Roy  |

November 15, 2012

US Production Hits Another High, But OPEC Still Needed To Meet Oil Demand

Details

We take a look at the latest developments in the oil market, including charts of all the major inventory categories.

The Department of Energy reported this morning that in the week ending Nov. 9, U.S. crude oil inventories increased by 1.1 million barrels, gasoline inventories decreased by 0.4 million barrels, distillate inventories decreased by 2.5 million barrels and total petroleum inventories decreased by 4.7 million barrels.

Crude oil prices were mixed after the release of the latest figures, as Brent rose and WTI fell. The spread between the two benchmarks reached as high as $26 today, not far from the record $28.08 set last October.

U.S. production continued to surge last week. The EIA said that output in the country topped 6.7 mmbbl/d, the highest level since May 1994.

Fast-climbing output, particularly in the U.S. Midwest, has saturated the region with crude—depressing WTI prices relative to global oil benchmarks such as Brent.

Global prices have been supported in recent sessions by rising geopolitical concerns. On Wednesday, Israeli airstrikes killed the military leader of Hamas, prompting retaliation by the group.

Meanwhile, the International Energy Agency made some bold forecasts earlier this week. The agency said that the United States will become the world's largest oil producer by 2017, overtaking Saudi Arabia. Additionally, the U.S. may become energy self-sufficient by 2035.

The trend of growing U.S. output is by now well-established; thus, these predictions sound reasonable.

In the short term, the oil market is fairly balanced. The IEA cut its demand growth forecast for 2012 to 670 Kbbl/d amid a slower economic growth outlook. However, non-OPEC supply is expected to grow only 460 Kbbl/d this year, even with the massive increase in U.S. production. That means OPEC has had to and will continue having to make up the difference.

The cartel’s production dipped to 31.15 mmbbl/d in October—a nine-month low—but that’s still up almost 1 mmbbl/d from a year ago.

Taking a look at the technical picture, Brent has managed to hold onto its $107 support level; thus, the benchmark is still considered range-bound between $107 and $117.

BRENT

WTI