The price of a barrel of Brent crude passed US$70 on 11 January, the first time it has done so since late 2014.
In trading on 12 January Brent fell to US$69 per barrel after briefly exceeding the US$70 mark the day before. Earlier this week, West Texas Intermediate (WTI) reached US$63.7 per barrel, its highest level since December 2014.
Analysts at Commerzbank Research said it is possible that profit-taking will now ensue, giving rise to what it described as “a much overdue correction.”
Commerzbank noted that China imported 7.95M barrels of crude oil per day in December – 12% less than in November, which was a very strong month. In 2017 as a whole, Chinese crude oil imports increased by 10% to a record average level of 8.41M barrels per day. “As such, China has superseded the US as the world’s largest crude oil importer,” Commerzbank said. “That said, China imports significantly more crude oil than it needs: at the same time, oil product exports in December rose to a record 6.17M tonnes.”
As analysts at Commerzbank noted, the significant price increase and high price level present a quandary for OPEC countries: higher revenues mean more money flowing into the public purse in the short term, yet OPEC risks losing market shares to US shale oil producers in the medium to long term.
It said the latest production estimates from the US Energy Information Administration have already pointed in this direction. Iran’s oil minister said this week that OPEC is not interested in an oil price above US$60. A withdrawal of the production cuts is nonetheless unlikely at present because the goal of rebalancing the market has not yet been reached.
The bank said the forthcoming IPO of the Saudi Arabian oil company Aramco also argues against any overly hasty u-turn in OPEC production policy.
The US Department of Energy reported this week that US crude oil production had fallen by 290,000 barrels per day last week, although the bank thinks this is likely to be temporary.
In a 10 January report the bank said “Oil prices are become increasingly detached from the fundamental data and risk overshooting.”