Oil Reverses Lower As US Crude Production Hits 10 Million Barrels

Oil rallies as stockpile surprise brings relief from global rout

Oil rallies as stockpile surprise brings relief from global rout

That was the second time in two months that the system had shut down. Higher output could undercut prices, analysts said, noting that official estimates for US production gains were recently increased.

"It is now clear that oil prices in late January were too high to keep the oil market balanced in the long term", Commerzbank analysts wrote.

The US Fed's indications of a higher interest rate, however, also resulted in a strengthened dollar.

The Opec sees non-Opec production rising by 1.15 mbpd next year while the IEA sees a growth of 1.70 mbpd. Surging US production continues to threaten OPEC's efforts to reduce the supply glut in the market. Experts predict an increase in the gold reserves in the U.S.by 3.189 million barrels after an increase of 6.776 million the previous week.

U.S. commercial crude inventories rose by 1.9 million barrels to 420.3 million in the week through February 2, the U.S. Energy Information Administration reported.

Speaking ahead of fourth quarter earnings, meanwhile, Total Chairman CEO Patrick Pouyanné told French newspaper Le Monde there were no guarantees that the price of oil will stay at its relatively high level.

Oil's inverse relationship to the dollar, whereby a stronger currency makes it more expensive for non-US investors to buy dollar-denominated assets, has reasserted itself this week, with the greenback up more than 1 per cent since Feb 1.

"It has had incredibly positive impacts for the USA economy, for the workforce and even our reduced carbon footprint" as shale natural gas has displaced coal at power plants, said John England, head of consultancy Deloitte's United States energy and resources practice.

The steep drawdown in U.S. inventories over the last several weeks has however underpinned strength in WTI to a large extent.

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Oil traded near the lowest closing price in two weeks as concerns about volatility in global markets offset an unexpected drop in USA inventories.

China imported 8.4 million barrels a day (b/d) of crude oil, compared to the 7.9 million b/d imported by the United States.

The dampening effects of surging U.S. production and a seasonal slowing down of demand were given a further boost last week, with the release of the USA wages data, which showed a stronger increase than expected.

The rally in prices has also been aided by the fact that output cuts by the Opec may extend beyond 2018. Oil has shed 5.2 per cent.

The drop in the Dow marked the index's biggest fall since the 2008 financial crisis. Iraq's output from its Northern region also remains affected ever since the Iraqi army took control from Kurds and has helped Iraq's compliance to show up better.

Pipeline and logistics firms are among the big beneficiaries, as booming crude demand means steadier profits for companies sending oil to the Gulf and storing it for export.

In addition, the relative price-to-book ratio of the sector is near a 10-year low at 0.6, suggesting it is undervalued.

Leon Cooperman, the chairman and CEO of Omega Advisors who predicted WTI's rise to $60 per barrel while it was still trading around the $49 mark, on Wednesday told CNBC that "I think the supply-demand outlook is favorable, and we would not be surprised to see oil reaching $70 a barrel". "Financial markets pulled out of the nose dive, although ongoing volatility shows that we are not out of the woods yet".

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