Expected US crude supply increase weighs on oil

Markets are pricing for the US crude supply increase, as the report from American Petroleum Institute caused the oil prices to dip. What is for OPEC upcoming oil cuts?

29 December, AtoZForex Oil futures dropped from the highest close in 17 months on the expected build in the US crude inventories.

Expected US crude supply increase

Oil prices dipped as markets expected an industry report to indicate an increase in the UD crude stockpiles. Oil futures slid 45 cents from their previous close. Markets blame the American Petroleum Institute (API) report on the US crude supplies. Reportedly, the industry report showed that crude stockpiles gained 4.2 million barrels per week.

West Texas Intermediate (WTI) extended gains for the eighth consecutive session, marking the longest streak in seven years on the optimism around the oil cut deal. Markets expect the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil producers to cut the output of oil by 1.8 million barrels per day. First oil cuts must be seen already in January 2017. An energy analyst at Citi Futures Perspective in New York, Tim Evans, has stated:

“It looks like U.S. refineries sharply cut back on runs last week, which would explain the unexpected build in U.S. crude supplies and the fall in products. That’s what the American Petroleum Institute says, but that might not be what’s shown tomorrow in the weekly petroleum status report.”

Oil was strengthening since OPEC has finalized its oil cut deal on the 30th of November in Vienna. Such agreement is historic, as it is the first time in 8 years when oil bloc plans on output cut. As a result, February WTI was trading at $53.66 a barrel at 4:58 PM on the New York Mercantile Exchange.

Bearish oil trend

February Brent gained 13 cents to $56.22 per barrel on the London-based ICE Futures Europe exchange. It has marked its highest close since July 2015. Analysts are awaiting the report from the US Energy Information Administration (EIA). They expect that it will indicate that US crude inventories dropped by 1.5 barrels last week. The senior equity analyst at Manulife Asset Management Ltd. in Toronto, Cavan Yie, has commented:

“The $50 to $60 area is the sweet-spot range for oil in 2017. There’s been the talk of the U.S. production response defeating this rally, but I think the threat has been overstated.”

Jabbar al-Luaibi, Iraqi oil minister stated that his country will trim the oil production by 200,000 to 210,000 barrels a day from the beginning of January. Moreover, Venezuela’s oil ministry has signaled that the country is ready to cut 95,000 barrels a day starting January 1st.

Additionally, a special monitoring committee will meet on 21-22 January in Vienna. The committee consists of a number of OPEC nations and non-OPEC members. Mohammad Barkindo, Opec Secretary-General earlier stated that this meeting will take place on the 13th of January in Abu Dhabi.

Fed Dallas on OPEC deal

Furthermore, according to the report from the Federal Reserve (Fed) Bank of Dallas, a lesser number of US oil and gas companies have filed for bankruptcy in Q4 2016. However, US authorities are still doubtful of the oil cut deal by OPEC.

Reportedly, Dallas Fed research team mentioned that a rise in oil prices since OPEC oil cut deal finalization has “provided a lifeline” to pressured firms. Yet, the influence of the OPEC oil output limit on the US drillers “will likely be muted in the near term.”

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