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Oil production and prices ramping up

Oil production and prices ramping up

Posted on: 7/5/2018 | Author: ATB Financial's Economics + Research Team

Last month, the Organization of Petroleum Exporting Countries (OPEC) and cooperating non-OPEC countries, like Russia, agreed to raise production for the first time since late-2016. The decision was made in direct response to rapidly growing and record level U.S. production (see chart below) and came with the intention of lowering prices.

Since OPEC increased production by one million barrels a day, North America’s benchmark price, West Texas Intermediate (WTI), continues to sit around US$75, while the Canadian benchmark, Western Canadian Select, hovers under US$50.

As Albertans know, more supply typically means a price drop, but a number of conditions have made oil traders more bullish lately. Global growth is on the rise and demand for oil has been following suit, increasing since OPEC and its allies agreed to cut production in late-2016. At the same time, political and economic unrest in big oil producing countries, like Venezuela and Iran, has interrupted production and kept prices strong.

Last month was also the first time OPEC met since the U.S. announced it would leave the Iran nuclear deal. U.S. sanctions on Iranian oil production will come back into effect in the autumn. The U.S. is also expecting its allies to eliminate oil imports from the country.

Given all this, oil prices will likely drop back below the US$70 mark and average around US$65 for the year.

US field production of crude oil

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