Oil prices jump on statistics of drilling rigs in US

If you are bullish, you might want to rethink your take.

"Importantly, all the pillars of the New Oil Order remain intact in our view so this is a cyclical call", Goldman analysts, including global head of commodities Jeff Currie, said in a note.

"The rebalancing of the oil market has likely been achieved, six months sooner than we had expected", Goldman's analysts wrote. November's production is the first time since 1970 that monthly USA production levels surpassed 10 million b/d and the second-highest US monthly oil production value ever, just below the November 1970 production value of 10.044 million b/d.

"The Opec/non-Opec production and United States tight oil have justifiably been a focus this year". According to the EIA, global oil demand increased to 98.38 million barrels a day in 2017 up from around 92 million barrels of oil a day in 2015. Since the beginning of the year, oil and the US dollar index have had a correlation of -0.86, with -1 being a perfectly inverse relationship.

He added, "Saudi and Nigerian output rose last month, but the increasing loss of Venezuelan barrels have reached a point that it is starting to be felt, and it is a grade of crude, relied upon by US refiners that is not easily replaced".

But don't just stop here.

American production isn't only expanding in onshore shale. At the moment the new measures officially sanction 6 vessels, nine entities (oil, ship-ping, and trading companies) and 16 other businessmen and public officials. It's not rocket science. Kuwait, OPEC's fifth-biggest crude producer, plans to invest $114 billion on capital projects over the next five years and another $394 billion by 2040, Kuwait Petroleum Corp.

As a matter of fact, we are starting to see them ramp up production very quickly.

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The bank also said rising USA shale supply actually will be needed to keep the market steady in the near-term, since any ramp-up in OPEC output will lag the rebalancing.

Shale and other tight oil production reached 5.09 million barrels per day in November, just more than half the country's total output.

In November, production was 790,000 barrels a day.

Now, think from a global perspective. These formations also produce considerable volumes of natural gas associated with the crude oil.

The six-country monitoring committee, which includes Russia, Kuwait, Venezuela, Algeria and Oman, will meet again in April in Saudi Arabia, with an exact date and venue yet to be decided. WTI prices have been on an upward trend since February 2016. I suspect that the markets will correct themselves and go higher but small position sizing will probably be necessary.

According to the EIA, operators can increase production in certain areas of the Permian region even if benchmark West Texas Intermediate (WTI) crude oil prices slip below $50 per barrel for an extended period.

Midgley added that he was "less concerned this time about shale production growth", saying that these barrels will be needed to meet strong demand growth this year, and that producers are showing far greater fiscal discipline and focusing primarily on cash flow over output.

  • Darren Santiago