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Oil prices are falling as data from the United States increases concerns about supply

Oil prices are falling as data from the United States increases concerns about supply

  • Summary:
  • In the United States, permian output will rise to nearly 4.9 million bpd in November, according to the Environmental Institute of America.
  • Gas and coal prices sway switch to oil products for power generation, resulting in higher demand for oil.
  • China cuts its independent refinery oil import quotas.

New York, Oct 18, 2018 (New York Times, October 18) - Oil prices have rebounded after hitting multi-year highs on Monday, with the stock trading mixed as US industrial output for September fell, easing initial optimism about demand.

In September, manufacturing at US factories fell by the most in seven months, as an ongoing global shortage of semiconductors reduced motor vehicle output, further evidence that supply constraints were limiting economic growth.

Phil Flynn, a senior analyst at Price Futures Group in New York, stated, "The oil market started off with vigor, but weak data on U.S. industrial production caused people to lose confidence in demand, and China released data that intensified those worries."

Brent crude oil futures traded down 53 cents or 0.6% at $84.33 a barrel after hitting $86.04, their highest since October 2018.

West Texas Intermediate (WTI) crude settled 16 cents higher, or 0.19%, at $82.44 a barrel, their highest level since October 2014.

Last week, both contracts increased by at least 3%.

Weaker industrial data was compounded by rising production expectations on Monday, further weighing on market sentiment.

According to a monthly U.S. report released on Monday, U-S production from shale basins is expected to rise in November.

The Energy Information Administration stated in its drilling productivity report that oil production from the Permian basin of Texas and New Mexico was expected to rise by 62,000 barrels per day (bpd) to 4.8 million bppd next month. In the month to September, the total oil output from seven major shale formations was expected to rise by 76,000 bpd to 8.29 million bps.

The early move higher on Monday came as market participants looked to ease restrictions after the COVID-19 epidemic and a milder winter in the northern hemisphere to boost demand.

"Easing restrictions around the world are likely to help the recovery in fuel consumption," ANZ Bank analysts said in a note, adding that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Edward Moya, an OANDA senior analyst, said that cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit.

"The oil market deficit appears to be on its way to increasing as the north's weather has already begun to get colder," he added.

"As coal, electricity, and natural gas shortages increase demand for crude, it appears that substantial extra barrels from OPEC+ or the United States won't be accompanied by significant additional barrel supply from the country," he said.

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to reduce the impact of rising energy costs on industry.

China's third-quarter economic growth fell to its lowest level in a year, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks. read more.

China's daily crude processing rate in September also fell to its lowest level since May 2020, as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

Warren Russell, a bank of America commodity strategist, stated in op-ed that global trade has quickly recovered from epidemic lows. Trade is up 13% year to date, and 4% above 2019 levels. According to the analysts, the trade indicates a rise in crude demand as economies recover from the epidemic.

"Financial assets like oil should perform well into 2021," according to the analysts.

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