Oil price firms up as EIA sees lower US output

Oil prices rebounded in early trading Wednesday after a report that US oil production continued to decline last month.

World benchmark North Sea Brent crude was at US$40.87 late morning Arabian Gulf time, up 61 cents from the previous day’s London close, with support coming from the overnight report showing that US oil output fell further in the latest month.

US oil output is estimated to have declined by 60,000 barrels per day last month versus October, according to the US government’s Energy Information Agency, which forecast that production would continue to decline through the third quarter of next year. Crude oil production in November was an estimated 9.2m bpd and has declined from a peak of 9.6m bpd in April.

The EIA forecast in its periodic Short Term Outlook report that oil production this year would average 9.3 million bpd and fall to 8.8m bpd next year.

The report noted that global oil inventories increased by an estimated 1.3m bpd last month, “putting downward pressure on Brent prices,” which averaged $44 a barrel, or $4 below the previous month’s average.

On Tuesday, Brent oil prices fell to a low of $39.81, their lowest since the first quarter of 2009 in the wake of the financial crisis, spurred partly by the pessimism that followed last Friday’s Opec meeting, when no coherent policy was offered and members said they would pursue individual output maximisation strategies.

Still, the EIA forecast that Brent will average $56 a barrel next year, slightly higher than the average so far this year of $54.61.

That forecast is in line with most of the major investment bank forecasts, as well as other major forecasters such as the International Energy Agency and Opec.

Bank of America Merrill Lynch, for example, forecast in a report on Wednesday that “oil balances are set to improve in the second half [2016], with the combination of global demand and lower non-Opec output potentially pushing crude oil back up to $55 a barrel.”

Still, the oil market remains under pressure in the short term amid a glut of supply and near record levels of inventory.


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