July 05–Oil prices fell Thursday after the government reported that crude stockpiles increased unexpectedly last week — but those developments appear likely to be short-lived, analysts said.
Several factors are pointing to higher prices and dwindling supplied, even as President Donald Trump jawbones OPEC via Twitter to boost production, analysts said. Global oil inventories are still declining while record U.S. production has plateaued for now, largely due to a lack of pipelines to move oil from the booming Permian Basin in West Texas to Gulf Coast and international markets.
“The inventories are going to fall faster because the Permian was the biggest engine for global [production] growth,” said James West, an energy analyst with Evercore ISI in New York.
The U.S. Energy Department said Thursday that commercial crude inventories jumped by 1.2 million barrels last week after trade groups and analysts had forecast a decrease. U.S. oil prices fell by $1.20 a barrel Thursday, settling in New York at $72.94 per barrel, less than a week after U.S. crude hit the highest price since November 2014, settling at $74.15 a barrel last Friday.
U.S. oil production has reached a record 10.9 million barrels a day, but it has stayed flat for about a month, according to the Energy Department. The more than 3.3 million barrels a day produced from the Permian are exceeding the region’s pipeline capacity, leading some companies to ramp down their drilling until pipeline construction catches up.
Scott Sheffield, CEO of the Dallas producer Pioneer Natural Resources, said last month that companies could start closing off oil-producing wells this fall because of the lack of pipelines. Sheffield made those comments at the recent OPEC meeting, at which the cartel and its allies agreed to allow production to rise modestly.
U.S. oil prices were hovering near $65 a barrel before the June 22OPEC deal was announced, and they have risen steadily since as traders and analysts expect global demand to stay strong and supplies to shrink, even with the added oil on the market. Sanctions imposed by Trump are expected to take more of Iran’s oil production off the market, while turmoil in Venezuela and Libya are driving down output in those oil-producing nations.
Trump, meanwhile, is pushing OPEC, especially Saudi Arabia, to increase production further, arguing that the cartel is pushing U.S. gasoline prices to artificially high levels. The White House’s effort is further angering Saudi rival Iran, which is facing more stringent penalties since Trump pulled out of the Iran nuclear accord negotiated under the Obama administration.
Trump tweeted Wednesday that fuel prices are artificially high and OPEC is “doing little to help.” He concluded, “REDUCE PRICING NOW!”
Iran responded that Trump’s social media activity is only helping to drive prices up, countering that pressure from the White House creates instability within energy markets by pitting OPEC nations against each other.
“Your tweets have driven the prices up by at least $10 per barrel,” Hossein Kazempour Ardebili, Iran’sOPEC governor, said in a response carried by Iranian Oil Ministry’s Shana news service. “Pls stop it, otherwise it will go even higher!”
In Texas, companies are racing to both build pipelines and to sign contracts to get on those pipelines. Houston oil producer Noble Energy said Thursday that it inked a new deal to sell Permian oil that it plans to ship on the EPIC Crude Oil Pipeline that will stretch from West Texas to the Corpus Christi region. The pipeline — one of several in development — isn’t slated for completion until mid-2019 at the earliest, but Noble will ship 100,000 barrels a day on it once it comes online.
Rye Druzin and Bloomberg News contributed to this report.
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