U.S. oil prices rose on Thursday morning following release of a key report estimating that global demand for crude has risen while supplies fell.
Cold weather in northern Europe and a rapidly industrializing Asia pushed crude demand to 96.5 million barrels per day in 2016, an increase of 1.5 million barrels per day, the International Energy Agency said in its monthly energy outlook.
Yet global supplies fell by more than 600,000 barrels per day last month, to almost 97.6 million barrels per day, largely due to promised OPEC production cuts, the agency said.
“Bullish, really bullish,” investment bank Tudor Pickering Holt said early Thursday.
After record drilling in most of 2016, the Organization of the Petroleum Exporting Countries cut production by 320,000 barrels per day last month to 33 million barrels per day, driven by lower output from Saudi Arabia and attacks on Nigerian pipelines and production fields.
“Early indications suggest a deeper OPEC reduction may be under way for January,” the agency, based in Paris, said in the report, “as Saudi Arabia and its neighbours enforce supply cuts.”
The long standing oil glut, however, has not yet dissipated and may not soon, the report warned.
World supply in 2016 still rose 300,000 barrels per day over the previous year; record OPEC output more than offset a 900,000 barrel per day decline in non-OPEC countries, as drillers in the U.S. and elsewhere reacted to plummeting prices.
Moreover, OPEC’s cuts, brokered in November as an antidote to the two-year-old crash in oil prices, may not shape up as promised. “It is far too soon,” the report said, “to see what level of compliance has been achieved.”
And non-OPEC production should grow by 385,000 barrels per day this year, the report continued, as higher prices stimulate U.S. drilling.
“Attention is inevitably focused on the U.S. shale oil patch,” the report said. Companies have added rigs to U.S. oil fields for six straight months — adding more rigs in December than the shale boom’s “heady days of April 2014.”
Moreover, it continued, U.S. drilling efficiency has “improved in leaps and bounds.”
“Whether it be shorter drilling times or larger amounts of oil produced per well, there is no doubt that U.S. shale industry has emerged from the $30-per-barrel oil world we lived in a year ago much leaner and fitter,” the report said.
Oil prices had risen to $51.53 by midmorning on Thursday, up 45 cents or less than 1 percent on the day. Oil settled at $51.08 on Wednesday.