Crude oil: Supplies more robust than expected - Westpac

Analysts at Westpac suggest that crude oil prices were expected to ease as we moved through 2017 as demand eased and supply lifted, with US tight oil drillers increasing production and OPEC discipline fraying.

Key Quotes

“In the end, OPEC discipline held and there was a smaller than expected rise in the US crude rig count. That said, productivity gains in the tight oil sector are high and while the current number of rigs is less than half of its 2014 peak, in December US crude production was above its June 2015 high. So while US crude production has lagged expectations, we had thought it would exceed the 2015 peak earlier than this, ongoing higher than expected prices will be providing struggling drillers with an additional margin to invest back into expanding output.”

“When combined with expectations for OPEC to continue holding the line, at least to mid-2018, supply will remain firm and thus supportive of price. However, the risk of a further lift in US production cautions us against getting too bullish from here.”