Oil prices continue their year-end rally on economic optimism and growing confidence that OPEC and NON-OPEC nations will adhere to production cuts. Not only have Saudi Ariba and Iraq signaled that they may cut output more than expected, the Kurdish authority in Iraq has told its refiners to expect more oil. So even with no possibility that Libya’s oil production might rise significantly stronger demand and compliance from other OPEC producers should put the market on track for a supply deficit in the first quarter So, in the history of OPEC production reductions this seems to be a cut above the others. That is why we continue to predict a move to $60 a barrel very soon.
Libyan oil production is kept despite the fact the Country has yet to prove to be a reliable supplier. Reuters reports that Libyan oil production is 622,000 barrels a day, more than double the 300,000-barrel level seen at some points this year. During its peak, Libya’s production registered more than 1.6 million barrels a day. Libya claims that fixed pipelines could add 270,000 barrels a day to production but with ISIS and other factions trying to control their oil it is unclear whether any of this will be sustainable.
U.S. producers are ending the year with a bang as they increased the oil rig count gains for the 8th straight week by 13. The increase puts the number of active rigs at the highest level since last January before rig operators started to shutter them after the global stock markets took a hit early last year. We still think that any U.S. output will be needed as demand is rising. Not only do we have strong seasonal demand because of the cold but also economic demand as the U.S. economy starts to awaken from its slumber. Gasoline demand over the weekend was Steller and we are seeing futures rise on the RBOB reflecting that fact. Traders are speculating that we may see a record for the Christmas holiday and that is driving prices higher.
Natural gas rigs were up 3 and we may need all the help we can get as we expect to see our storage surplus wiped out this week. With expectations that supply could fall by 240bcfs this week, that would effectively put supply below average would send shock waves to this market as the weather forecasts for January turn much colder. With the January option expiration, we could see some early New Year fireworks.