IEA Pressures WTI Futures Lower

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were mixed with a downside bias Thursday morning after the International Energy Agency said rising oil production in the United States would keep the global market in surplus during the first half of 2018.

In its December Oil Market Report, IEA expects non-OPEC annual supply growth at 600,000 bpd to 58.1 million bpd in 2017 while revising higher its 2018 projection by 200,000 bpd for a 1.6 million bpd year-on-year growth rate to 59.7 million bpd. The revision for the non-OPEC supply outlook was prompted to a large extent by the pace of growth in U.S. shale output, which would offset production cuts by OPEC members and their nonmember allies.

"We have raised our annual growth forecast for total U.S. crude to 390,000 bpd this year and 870,000 bpd for 2018," said the report. "The flexibility and ingenuity of the shale sector raises challenges to forecasters. Even so, when our U.S. outlook is added to expectations for the other producers, output from non-OPEC countries could rise by 1.6 million bpd in 2018, an increase of 200,000 bpd to our forecast in last month's report."

IEA said based on the current outlook "2018 may not necessarily be a happy New Year for those who would like to see a tighter market. Total supply growth could exceed demand growth: indeed, in the first half the surplus could be 200,000 bpd before reverting to a deficit of about 200,000 bpd in the second half, leaving 2018 as a whole showing a closely balanced market."

On short-term basis, the Energy Information Administration reported Wednesday that U.S. crude oil production rose 73,000 bpd last week to a 9.78 million bbl fresh 46-year high while 984,000 higher on the year but crude oil stocks were drawn down by 5.1 million bbl.

EIA also reported a 5.7 million bbl build for gasoline stockpiles last week while down 3.5 million bbl on the year, with gasoline production up 371,000 bpd to more than 10.1 million bpd. Distillate fuel inventories declined 1.4 million bbl during the week while they were down 27.9 million bbl or 17.9% below a year ago.

In early trade, NYMEX January West Texas Intermediate crude oil futures were 49cts lower at a $56.11 bbl one-week low. ICE February Brent was 33cts lower at $62.11 bbl, off a $62.01 four-day low. NYMEX January ULSD futures dropped 2.16cts to $1.8826 gallon while January RBOB futures edged up 0.69cts to $1.6536 gallon.

George Orwel can be reached at George.orwel@dtn.com

(BE)