Oil's gain on global market rebound curbed by US shale threat

Tokyo - The prospect of a US shale resurgence is keeping oil from being fully swept up in a wave of relief spreading across risk assets.
Crude’s gains have lagged behind those in stocks as markets start to stabilize after a global rout spurred a near 10% slump in oil last week.

Futures in New York are up 0.6% on Tuesday after nudging up 0.2% in the previous session, when US equities rallied over 1%.

Forecasts for rising American inventories and higher shale supplies are fuelling concerns that oil’s re-balancing may be derailed.

Still, the rebound in global markets from the selloff - which wiped $2trn from American stocks - is at least allaying some concern that oil consumption will weaken.

Demand is set to grow by 1.6 million barrels a day in 2018, the same level as last year, and crude inventories are continuing to dwindle as OPEC and its allies pursue their output cuts until the end of the year, according to the producer group.

"Concerns over oil demand have eased after equity markets surged," Takayuki Nogami, chief economist at state-backed Japan Oil, Gas & Metals National, said by phone.

"There’s uncertainty in the market over whether supply and demand will balance by the end of this year as US output is rising.
The oil market may become re-balanced in 2019 or later, instead of the end of 2018."

Forecast threat

WTI for March delivery added as much as 44 cents to $59.73 a barrel on the New York Mercantile Exchange and traded at $59.64 at 1:22pm in Tokyo. The contract rose 9 cents to settle at $59.29 on Monday, snapping six days of loss.

Total volume traded was about 22% below the 100-day average.

Brent for April settlement rose 42 cents to $63.01 a barrel of the London-based ICE Futures Europe exchange. The contract declined 20 cents to $62.59 on Monday. The global benchmark traded at a $3.57 premium to April WTI.

Crude inventories probably climbed by 3 million barrels last week, according to a Bloomberg survey, while the Energy Information Administration said US shale oil will rise by 110 000 barrels a day in March.

Oil production outside the Organisation of Petroleum Exporting Countries (OPEC) will expand by 1.4 million barrels a day in 2018, about 250 000 a day more than the cartel projected last month, according to a report published on Monday.

The market should re-balance this year, given robust demand and as the group and its allies comply with pledges to curtail supply, United Arab Emirates Energy Minister Suhail Al Mazrouei said Monday in Dubai.

Other oil-market news:

OPEC compliance with crude output cuts rose to a fresh record in January from the previous month, according to Bloomberg calculations from the group’s secondary-source estimates in a monthly market report published on Monday.

Shale oil output will be absorbed by rising demand in 2018, Kuwait Oil Minister Bakheet Al-Rashidi told reporters in Kuwait City.

OPEC and non-OPEC need to keep cooperating beyond 2018, the group’s Secretary-General Mohammad Barkindo told reporters at a conference in Cairo.

Profits from making gasoline fell to the lowest level since February 2017 as gasoline supplies remain elevated and production stays high despite it being refinery maintenance season.