Oil resurrection sets stage for another Opec-shale clash in 2018

[SEOUL] Oil's revival from the biggest crash in a generation persisted, with prices set for a second annual gain after weathering everything from hurricanes and Middle East conflict to the tussle between Opec and US shale.

Benchmark futures are up more than 11 per cent in 2017, after going into a bull market in September. While gains were driven by glut-shrinking output cuts by the Organization of Petroleum Exporting Countries and its allies including Russia, geopolitical tensions in the Middle East as well as pipeline disruptions from the North Sea to Canada and Libya have also helped. In 2018, investors will watch if US output undermines Opec's curbs.

Speculation is rising that American drillers will put more rigs to work as oil strengthens, with shale growth driving forecasts of record US supply in 2018. That could act counter to plans by producers including Saudi Arabia, who have pledged to extend production curbs through end-2018 to wipe out a global glut. After Hurricane Harvey shut Gulf Coast refiners at the end of August and hurt prices, violence in Iraq and a pipe crack in the UK have helped buoy crude.

"The key driver for the oil market this year has been that the Opec and Russian production cuts were introduced, complied with and extended," said Ric Spooner, a Sydney-based analyst at CMC Markets.

"This has allowed the market to reduce inventory despite production increases in the US, Libya and Nigeria." West Texas Intermediate for February delivery was at US$60.15 a barrel on the New York Mercantile Exchange, up 31 US cents, at 11:10am in Seoul. Total volume traded was about 7 per cent below the 100-day average. Front-month prices are 12 per cent higher this year, after rising 45 per cent - the most since 2009 - in 2016.

Brent for March settlement added 32 US cents to US$66.48 a barrel on the London-based ICE Futures Europe exchange. The February contract expired Thursday, after rising 28 US cents to US$66.72. The benchmark for more than half the world's oil has gained 17 per cent this year, after climbing 52 per cent in 2016. It was at a premium of US$6.29 to March WTI.

Oil's trading at the highest level since mid-2015 after WTI breached above US$60 a barrel for the first time in more than two years. The benchmark traded at an average price of about US$51 this year. Nationwide stockpiles fell 4.6 million barrels last week to the lowest level since October 2015, according to the Energy Information Administration Thursday. That beat the 3.75 million average estimate in a Bloomberg survey of analysts.

"The tug-of-war between Opec and the US will continue to pressure oil from trading above US$60 a barrel in 2018," said Kim Kwangrae, a Seoul-based commodities analyst at Samsung Futures Inc. "Like we've seen this year, geopolitical risks will be the key factor going forward for oil to breach US$60."

Following an explosion on Tuesday, Waha Oil Co is working to repair the pipeline that carries crude to Libya's Es Sider port, the North African nation's biggest export terminal, while a major UK North Sea pipeline is nearing a return to full service after an outage this month.

The Trump administration is rolling back offshore drilling rules put in place after the 2010 Deepwater Horizon disaster killed 11 workers and spewed millions of barrels of oil into the Gulf of Mexico.

BLOOMBERG