NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures rose Friday morning as traders covered short positions on expectations the Forties crude oil pipeline in Europe will be down for several weeks and on oil production cuts by the Organization of the Petroleum Exporting Countries that offset higher oil output in the United States.
The 445,000-bpd pipeline was shut early this week after a crack was found in Aberdeen, Scotland, and its operator Ineos said it could be many weeks before the line is back in service. Forties contributes 40% of the four crude oil streams feeding North Sea Brent crude, a benchmark that sets prices of other international crudes.
"The discovery of a crack in an onshore portion of the Forties Pipeline System disrupts over 400,000 bpd of U.K. oil production and removes one of four streams that serve as the physical benchmark for ICE Brent futures. If the high sulphide content of Buzzard crude and the cold weather contributed to the crack, repairs might take longer than just a couple weeks as Ineos anticipates," said Barclays in a note.
This comes after the Energy Information Administration reported midweek that U.S. crude stocks were drawn down by 5.1 million bbl during the week ended Dec. 8, which further boosted West Texas Intermediate crude. However, EIA also reported that U.S. crude production increased 73,000 bpd to a 9.78 million bbl fresh 46-year high during the week ended Dec. 8 while 984,000 higher on the year.
This afternoon, the market will review Baker Hughes's U.S. rig count report, which will indicate whether production gains will continue in the coming weeks. The rig count as of last week had increased for three consecutive week to 751, up 253 from a year earlier.
On Wednesday, OPEC's Monthly Oil Market Report showed total OPEC crude oil production averaged 32.45 million bpd in November, down 133,000 bpd over the previous month and to the lowest in six months. OPEC and 10 non-OPEC producers last month agreed to continue with their production cuts of 1.8 million bpd through December 2018.
On Thursday, the International Energy Agency kept unchanged its global oil demand outlook but raised its forecast for oil production by non-OPEC, led by U.S. oil production.
In its December Oil Market Report released Thursday, the Paris-based IEA raised its forecast for U.S. output growth to 870,000 bpd for 2018, up from last month's forecast for an increase of 790,000 bpd. IEA sees a global oil surplus of 200,000 bpd during the first half of 2018 turning to a deficit during the second half, which means the market is going to be closely balance by late next year.
In early trade, NYMEX January West Texas Intermediate crude oil futures were 28cts higher at $57.32 bbl. ICE February Brent was 19cts higher at $63.50 bbl, trading at a $6.18 premium to WTI. NYMEX January ULSD futures were 1.39cts higher at $1.9238 gallon while January RBOB futures advanced 1.04cts to $1.6811 gallon.
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