Published: Thu, May 18, 2017
Business | By Cristina Jennings

Soaring oil helps BP and Shell drive FTSE to new high

Soaring oil helps BP and Shell drive FTSE to new high

Members of the cartel along with Russian Federation and other producers are due to meet on May 25 to prolong the pact. In line with "stronger recent performance from the USA shale sector, we have revised upwards our expectation throughout 2017, and we now expect total USA crude production to exit the year 790,000 b/d higher than at the end of 2016, which is an upward revision of 100,000 b/d since last month's report". But by May 17, July contracts for Brent crude were trading at $51.55.

USA producers rushed to lock in oil prices above US$50 after OPEC's deal was announced, and most of the new oil derivatives since Q4 2016 have been added at strike prices between US$50 and US$60 a barrel, Wood Mackenzie said in an analysis at the end of March.

The oil prices will increase up to $60 per barrel or even slightly higher whether the oil producers agree or not, according to the expert's forecast.

This has allowed refiners in the third-largest oil consumer to shop around during periods of tightness, and remain profitable in a fast-growing, cost-sensitive market. Additional supply from other non-OPEC nations, like the United States, has offset the cuts.

He cautioned, however, that the market may expect deeper cuts to keep prices elevated, particularly with US production still rising. A related objective concerns flipping crude futures' term structure from contango to backwardation, which would remove the profit motivate for storage and should therefore accelerate drawdowns. The January/December 2018 spread settled Tuesday at 35 cents/b.

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Another potential drawback to prolonging the cuts is how the market will cope with the extra supply once production returns to normal levels when the deal ends, said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia.

The news agency also reported that the number of tankers storing oil is also on the rise across offshore China, as facilities on land remain full. CRUDE NEAR TECHNICAL MIDPOINT Market participants are focusing on the outcome of next week's gathering in the Austrian capital, which could keep prices bound in a range until then.

For the past week, crude imports averaged 8.6 million barrels a day, up by 970,000 barrels a day compared with the previous week. Sour grades continued to trade higher than sweet crudes.

Specifically, the country's crude oil production increased from 1.210 million bpd recorded in March to1.484 million bpd in April.

Gasoline futures rose 0.88 cent, or 0.55%, to $1.6131 a gallon.

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