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13 Mar 2015
Oil drops, Brent-WTI widens post EIA report – KBC
FXStreet (Barcelona) - The KBC Bank Research Team comments on the oil prices and EIA’s short-term forecast for crude inventory.
Key Quotes
“Unlike the API data on US oil inventories released on the day before, the official EIA’s report released on Wednesday showed further strong built in stocks had taken place last week. This had led to a renewed widening between the prices of Brent and WTI.”
“Let us recall that price of the front-month contract on WTI increased significantly since the end of January as weekly Baker Hughes data have showed continuing slump in active rig count in the US and therefore have suggested a slowdown in oil production growth in the US.”
“Recent decline in prices may thus have been, at least to some extent, caused by a revision of “too-optimistic” expectations - as far as the timing of rebound in oil prices is concerned - of some investors.”
“Regarding the new EIA short term forecast, it unveiled that the agency slightly revised its forecast for this year’s US oil production to the upside (in comparison with the last month’s report).”
“Moreover, the agency says that “projected 2015 oil prices remain high enough to support continued development drilling activity” in the key shale regions, though the pace of production growth is expected to slow down vis-a-vis the previous years.”
“The agency added that “the forecast remains particularly sensitive” to actual oil prices.”
“As for the latter, we believe that every episode of higher oil prices (such as that in the beginning of February) is being utilized by oil producers to hedge their future production and allows them to continue drilling. This consequently poses risk for bets on the timing of rebound in oil prices.”
Key Quotes
“Unlike the API data on US oil inventories released on the day before, the official EIA’s report released on Wednesday showed further strong built in stocks had taken place last week. This had led to a renewed widening between the prices of Brent and WTI.”
“Let us recall that price of the front-month contract on WTI increased significantly since the end of January as weekly Baker Hughes data have showed continuing slump in active rig count in the US and therefore have suggested a slowdown in oil production growth in the US.”
“Recent decline in prices may thus have been, at least to some extent, caused by a revision of “too-optimistic” expectations - as far as the timing of rebound in oil prices is concerned - of some investors.”
“Regarding the new EIA short term forecast, it unveiled that the agency slightly revised its forecast for this year’s US oil production to the upside (in comparison with the last month’s report).”
“Moreover, the agency says that “projected 2015 oil prices remain high enough to support continued development drilling activity” in the key shale regions, though the pace of production growth is expected to slow down vis-a-vis the previous years.”
“The agency added that “the forecast remains particularly sensitive” to actual oil prices.”
“As for the latter, we believe that every episode of higher oil prices (such as that in the beginning of February) is being utilized by oil producers to hedge their future production and allows them to continue drilling. This consequently poses risk for bets on the timing of rebound in oil prices.”