Oil prices surged more than $2 per barrel last week as seasonal oil demand began to surface and Opec output cuts continued to outweigh potential gains in US shale oil production. Observers worry that as the forward price curve flattens, the oil market’s exuberance might be creating an alternative reality, and that the prompt market’s discounts need to widen again - spelling soft- ness for oil prices. International benchmark Brent put on $2.08/bbl to close at $56.24/bbl, while US price-pin WTI finished $2.41/bbl higher at $53.78/bbl - its highest since Jan. 6. But the weakening of Brent’s forward price contango is puzzling analysts: It no longer pays to store Brent, suggesting that the market rebalancing process is basically done - even though the market still has hundreds of mil- lions of barrels in surplus inventory. US commercial crude oil stocks are up 8 million bbl since late December, according to Energy Information Administration figures, while gasoline stocks are up 17 million bbl in that period and diesel stocks higher by 6 million bbl. Gasoline crack spreads in the US have fallen $5/bbl over the past five weeks, with domestic demand weakening. The EIA sees total US oil consumption down by nearly 500,000 b/d in the first three weeks of the 2017 compared to the first three weeks of 2016. The Dow Jones Industrial Average closed higher than 20,100 Thursday - close to its historic record on expectations of supportive policies from the Trump administration. Trump has signed executive orders paving the way for the building of controversial Keystone XL and Dakota Access pipelines and streamlining environmental checks. Both moves are likely to reignite US drilling for shale oil.
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