Oil Drops as US Inventories Build Up

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The price difference between West Texas Intermediate (WTI) crude oil and the global crude oil benchmark, Brent, will hold at $6 per barrel in early 2018 before dropping to $4 per barrel, according to Energy Information Administration (EIA) projections released on Wednesday.

Although both Brent and WTI are showing slight signs of recovery, both have shed 4 percent since their 2015 highs last week, weighed down by rising crude inventories in the US.

That compared with analyst expectations in a Reuters poll for a decrease of 2.2-million barrels.

Light, sweet crude for December delivery lost 37 cents, or 0.7%, to $55.33 a barrel on the New York Mercantile Exchange, closing near a two-week low.

With big gains forecast in its output of shale oil, the United States is expected to become a net oil exporter by the mid-2020s, the IEA said, adding that the USA will account for 80 per cent of the increase in the global oil supply to 2025, which will maintain near-term downward pressure on prices.

US crude imports rose last week by 261,000 barrels per day. Global and USA inventory levels have come down, and geopolitical risks have added supply uncertainty to a seemingly tighter market.

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As prices rise, "that can only encourage more and more US production coming on board", said Tariq Zahir, managing member of Tyche Capital Advisors. The S&P Global Platts survey forecast supply declines of 1 million barrels for gasoline and 2 million barrels for distillates. The deal expires in March and was expected to be extended at a November 30 OPEC meeting. Traders are saying the mixed results are in reaction to pressure from surging USA supplies and doubts over Russian support for continuing a cut in crude output.

OPEC and other big exporters including Russian Federation agreed a year ago to cut crude output by 1.8 million barrels per day (bpd) between January this year and March 2018 to try to bolster prices. That could mean world oil consumption may not breach 100 million bpd next year as many had expected.

The price spread forecast for WTI-Brent in the EIA Short-Term Energy Outlook (STEO) for November was approximately $1 per barrel less than the previous month's forecast.

Gasoline futures fell 1.3% to $1.7388 a gallon and diesel futures rose 0.1% to $1.9087 a gallon.

The data also showed distillate stocks in the U.S. Gulf fell to a one-year low, while overall refining rates rose in the latest week, led by a jump in East Coast refining, which is operating at a record 99.8 per cent of capacity.

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