Oil Prices Higher Ahead of U.S., OPEC Production Data
January 17 2017 - 10:20PM
Dow Jones News
By Jenny W. Hsu
Crude futures ticked higher Wednesday in Asia on optimism that
declining production in over 20 major oil nations, including China,
will reset the market into a shortage in the first half of the
year.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in February traded at $52.60 a barrel at 0205 GMT, up
$0.12 in the Globex electronic session. March Brent crude on
London's ICE Futures exchange rose $0.16 to $55.63 a barrel.
On Tuesday, China's top economic planning body said the
country's oil production will likely fall to around 4 million
barrels a day annually, or 7%, in 2020 compared to the level in
2015. At the same time, China's net crude imports are expected to
widen by 5.3% on-year to around 8 million barrels a day in 2017,
according to estimates by China's state-run energy giant China
National Petroleum Corporation.
In 2016, China's crude imports hit a historical high at 7.65
million barrels a day, a 14% on-year growth.
Analysts say robust demand by local refineries and the
government's aggressive effort to enlarge its strategic petroleum
reserve will keep China's crude import elevated.
"China met about 64.8% of its oil needs via imports in 2016, and
this could increase to 66.7% in 2017," said BMI Research in a
note.
China sources most of its crude from the Middle East and Africa,
making producers there the biggest gainers of China's growing
thirst.
China's falling production comes at a time when the world's top
crude suppliers, including 10 of the 13 members of the Organization
of the Petroleum Exporting Countries and 11 non-cartel players, are
also reducing their output. The goal is to chip away the global
overhang in order to raise oil prices and spur more
investments.
Saudi Arabia, the world's largest crude exporter, earlier this
week said if producers stick to the agreed plan to cut production,
the market will shift into a deficit by mid-year. Moreover, a
production cap might be unnecessary by then because of the typical
rise in oil demand during the summer months.
But some analysts believe the price rally will not sustain as
U.S. production is expected to surge this and next year.
President-elect Donald Trump, a vocal supporter of easing
restriction on U.S. oil drilling, will be sworn in on Friday.
Seen as the marginal producer, U.S. production is the key in
narrowing the gap between supply and demand in oil, said Vivek
Dhar, commodities strategist at Commonwealth Bank of Australia.
"So what will happen in the second half of the year when OPEC
and others ramp up production again and the U.S.'s production keeps
growing?" he said, forecasting oil to likely revert to the low $50
range after crawling up to the $55-60 range in the first half.
In the near term, market watchers will also be following the
fluctuation of the U.S. greenback, which has fallen around 2.5%
since the beginning of the year. A depreciating dollar bodes well
with foreign oil traders as the oil business is done in
dollars.
"Political uncertainty continues to weigh on the markets,
although strong fundamentals should keep prices trending higher,"
said ANZ Research.
Nymex reformulated gasoline blendstock for February--the
benchmark gasoline contract--rose 47 points to $1.6051 a gallon,
while February diesel traded at $1.6523, 37 points higher.
ICE gasoil for February changed hands at $488.25 a metric ton,
down $2.50 from Tuesday's settlement.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
January 17, 2017 23:05 ET (04:05 GMT)
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