Published: Sat, March 18, 2017
Business | By Sandy Mccarthy

West Texas Crude Unchanged as Crude Inventories Dip

WTI prices fell below the psychological $50 mark for the first time since December as the optimism built up post the Opec deal started to fade. That's about what OPEC agreed to cut in production, though the IEA said its first quarter growth forecast was revised lower by 300,000 bpd. Prior to the Vienna agreement production from OPEC countries was increasing.

Saudi Arabia has set a near-impossible target to end the current round of OPEC oil-production cuts, indicating that a policy rollover into the second half of the year is a near certainty. Iraq's compliance still hasn't come fully but more output cuts are likely in the coming weeks.

West Texas crude is showing little movement in the Wednesday session, as WTI/USD stays close to the $48 level. The higher level of compliance by OPEC is partially offset by Russian Federation only reducing production by 100 Mbbl/d (in comparison with the agreed reduction of 300 Mbbl /d). The aim was to reduce a glut in global oil supply that has depressed prices, which now stand at around $48-$51 per barrel. Saudi Arabia has already eased its own cuts, causing February 2017 oil production to expand by 263,000 barrels daily. Brazil's oil exports also have been climbing with February exports at a record 1.63 mbpd. "The OPEC cuts were good enough to prevent a repeat of the glut of previous year, but it's a different story if you want to have oil at $60 or $70".

Elbhar argues Opec is right to make a move now given the chance of a hedge fund oil exodus, the bullish nature of U.S. shale production and the sudden dip in prices.

"Despite the broad-based headlines of a holistic global oil surplus, we contend that certain markets such as Asia remain in a deficit, while regions like the Atlantic Basin and the USA remain in surplus".

While the production cut is surely medium term price positive, the biggest headwind to prices is the re-emergence of shale producers.

The potential for increased USA production continues to build, as Baker Hughes weekly rig count data showed an increase of 14 drilling rigs in the United States.

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OPEC increased output by 170,000 bpd to 32 million bpd and non-OPEC oil production increased by 90,000 bpd to 57.8 million bpd, largely due to higher USA output.

Rig counts have recently ticked higher and with credit and earnings issues improving for some USA shale drillers, those companies may seize the opportunity to exploit higher pricing in the near-term.

Falling oil prices weighed on energy shares on Tuesday in the wake of a report of rising crude stocks, while the US dollar strengthened ahead of an expected Federal Reserve decision to raise interest rates. EIA data shows in the latest week, US output hit a 13-month high at 9.1 million barrels a day.

For May LCOK7, Brent Crude Oil added +0.71% to 34 cents, or 0.7%, to $52.15 per barrel.

Broadening the picture, new data for total OECD oil stocks confirms the legacy of higher production a year ago. In Europe, stocks at the Amsterdam-Rotterdam-Antwerp (ARA) are down 9.4 per cent y/y to 46.54 million barrels.

Six of 10 analysts polled by Reuters said they believed OPEC would prolong its output reductions past the deal's six-month duration.

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