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Crude oil futures fall on easing supply concerns

Crude oil futures were lower during mid-morning trade in Asia Nov. 17, after concerns of tight supply eased amid expectations of increasing US shale activity and reports of the US requesting China to release its oil reserves.

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At 11:24 am Singapore time (0324 GMT), the ICE January Brent futures contract was down 63 cents/b (0.76%) from the previous close at $81.80/b, while the NYMEX December light sweet crude contract fell by 67 cents/b (0.83%) to $80.09/b.

Oil prices slipped as the support from a tight supply outlook eroded slightly following the release of the International Energy Agency's monthly Oil Market Report late Nov. 16, which highlighted the role that post-hurricane increase in US shale production, spurred by strong oil prices, played in meeting recovering demand.

"The world oil market remains tight by all measures, but a reprieve from the price rally could be on the horizon...not because demand is declining, but rather due to rising oil supplies," according to the report.

The expectation of rising shale production was backed by the US Energy Information Administration's monthly Drilling Productivity Report released Nov. 15, which forecasts an 85,000 b/d increase in oil production from November to December, the largest of which is likely from the Permian basin.

In addition, media reports of the US requesting China to release its oil reserves to help stabilize strong crude oil prices, as part of ongoing economic negotiations between the two countries, has bolstered expectations of an increase in supply.

"That might very well be what is driving prices down today, let's see if we see a joint release of SPR from them," ING analyst Warren Patterson told S&P Global Platts Nov. 17.

"But it is important to remember that the SPR release is just a short term solution. Maybe that is what they are aiming for, a short term solution for high oil prices until we reach next year, where oil markets are expected to be oversupplied according to recent reports from the IEA, EIA and OPEC."

The US government has been flirting with the idea of releasing its own strategic petroleum reserves after the OPEC+ alliance refused to heed calls in their November meeting to loosen oil production taps, but has yet to make an official decision on the matter.

Meanwhile, the American Petroleum Institute has estimated a 0.655 million-barrel build in US crude inventories for the week ended Nov. 12, according to media reports. S&P Global Platts in an analysis published Nov. 15 expects US crude oil inventory draws to resume in the week ended Nov. 12 as exports pushed to a four-month high.

Nationwide commercial crude stocks declined 2.5 million barrels last week to around 432.6 million barrels, analysts said. The counter-seasonal draw would widen the deficit to the five-year average of US Energy Information Administration data to 7.4%, out from 6.3% the week prior.