LONDON (Commodity Online): Crude Oil markets gained ground in previous trade following a duet of positive macro economic news from both sides of the Atlantic. The initial note of positive sentiment emerged as European leaders agreed on a firmer solution to contain the debt crisis, while further confidence was harped as advance estimates for US GDP readings for Q3 showed the economy growing at the fastest pace in a year.
Front-month WTI gained 3.76 to $93.96/bbl, while the equivalent Brent contract edged higher by 3.17 to $112.08/bbl, once again proving that in the absence of gloomy macroeconomic indications, the underlying fundamentals of the market allow prices to reflect its true potential and that the path of least resistance for prices is truly higher. Indeed, the fundamentals remain constructive on the demand, supply and inventory front, and with limited available spare capacity, the market is at its tightest it has been in years.
And further evidence of the deterioration on the supply side was conveyed through the extremely disappointing set of August numbers for UK domestic production. At 808 thousand b/d, total production is at its lowest levels since 1978. Apart from extending the trajectory of m/m deterioration, this also constituted a sharp y/y fall of 344 thousand b/d, with a different time-line of maintenance aggravating the extent of the decline.
This year has been worse given that alongside several ageing oil fields, technical problems have persisted, especially at Nexen’s Buzzard oilfield, where cooling problems at its platform have kept the field offline for nearly six months. The restart has faced several delays too, and while currently, Buzzard is up and producing at full capacity of just above 200 thousand b/d, the field has been the biggest contributor to the weakness in UK output this year. Further glitches in output cannot be ruled out either as Nexen adds a caveat that efforts made towards increasing the rate of flow through the fourth platform could result in some more variability.
As a result, UK oil production is running lower y/y by 233 thousand b/d in the year-to-date, with crude output down by 189 thousand b/d. Overall, Barclays expete UK production to be lower y/y by 0.17 mb/d, followed by a fall of 0.08 mb/d next year.
