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Oil Heads for Weekly Gain; Record U.S. Output Threatens OPEC Cuts

22/02/2019 16:22:14 Commodities
By Barani Krishnan If oil funds can't get any more news on Saudi production cuts, then any positive news on the U.S.-China trade war would seem to do.Prices of New York-traded West Texas Intermediate crude and London's Brent rose on Friday, heading for a third weekly gain in four, as traders awaited President Donald Trump's trade meeting with China's Vice Premier Liu He. WTI was up 34 cents, or 0.6%, at $57.30 per barrel by 11:30 AM ET (16:30 GMT). It hit a three-month high of $57.81 earlier.Brent, the global oil benchmark, was up 7 cents, or 0.1%, at $67.14 per barrel, after a November peak at $67.72.For the week, WTI was up more than 3%, while Brent was almost 2% higher."I feel like the rally we have seen has been a combination of CTA buying and strong physical markets," said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C.But Shelton, one of the more pragmatic bulls in oil, thinks that some of the CTAs behind this year's 25% rally in crude were also neutral in their mid- and long-term view on crude."The question is whether or not they will get long," he said. "Spending another week above the 100-Day Moving Average may generate that as the market confirms the level, but I am dubious about the general macro as the last shoe to drop to me on that side is the Chinese-U.S. trade deal. I wonder what will be next to drive the bullish rhetoric."Traders will also be on the lookout for the latest reading on U.S. oil rigs due at 1:00 PM ET from industry firm Baker Hughes. The rig count has risen by a total of 10 the past two weeks after falling by 15 at the end of January to a nine-month low of 847.Record crude exports out of America were saving the day for oil bears, data from the U.S. Energy Information Administration showed on Thursday, as domestic production hit the magic 12-million-barrels-per-day figure last week.The EIA forecasts a 13 million bpd output by the end of 2020, the most that any country has ever achieved in a day for oil. But some analysts, including those at Citigroup (NYSE:C), believe that figure will be achieved this year.“We see total U.S. crude production hitting 13 million bpd by year-end, with 2019 averaging 12.5 million bpd,” Citigroup's analysts said, adding that exports could scale 4.6 million by then, versus last week's record of 3.6 million.The surging U.S. production could offset OPEC cuts led by Saudi Arabia, warn oil bears who say that total supply is what will matter to the market despite American shale being a lighter variant oil of the heavier grade produced in the Middle East.