The market will seek more direction from data due later on Friday.
“Saudi Arabia directly communicated that the country’s production returned above 10 [million barrels a day], which was actually more than 0.2 [million barrels a day] above OPEC’s own estimates”, Robbie Fraser, commodity analyst at Schneider Electric told marketwatch.com (and summed up the market’s fears). Instead of rebounding to $53 a barrel, USA crude has remained stuck around $49. On March 7, 2017, the spread was at $2.78 per barrel. This week’s data will show how positioning developed after the sharp decline crude prices seen last week. The uS price later recovered the $US48 a barrel level in after hours trading.
“For 2017, demand for OPEC crude is projected at 32.4 mln barrels a day, around 0.7 mln barrels a day higher than in the current year”. The key aspect to watch over the coming weeks/months is how the cost inflation in U.S. tight oil production impacts the addition of further rigs and so the sustained growth in supply.
The latest COT positioning data will also be an important focus late in the United States session. Increased hedging and rigs have helped bring USA crude production back over 9.1m bpd for the first time since February 2016.
US oil and gas drilling has picked up, with producers planning to expand production in North Dakota, Oklahoma and other shale regions, while output has jumped in the Permian, America’s largest oilfield. Europe is seeing strength in inflation and industrial output – so much so that the European Central Bank (ECB) appears more likely to slow down its bond-buying program (quantitative easing) and potentially raise interest rates.
“U.S. stockpiles will be a headwind for the market until there is a consistent downtrend”, said David Lennox, a resource analyst at Fat Prophets in Sydney. OPEC has broadly complied with its commitment to cut 1.2 million bpd in the first half of the year, but investors have been unnerved as stocks have kept climbing.
In a sign that OPEC’s efforts have had little impact, oil shipments to Asia have increased 3 percent since the OPEC supply cut deal was made. Going forward, we expect that compliance might slip but still will stay about the effective level of 60%.
According to him, expectations of growth of shale oil production was already priced in the market and and in OPEC’s strategy. Again, one has to wonder what the thinking is since shale producers could begin production from within nine days of a full shut down. “But preliminary data and analyses do not portend such a development, especially because of a significant slowdown in demand growth in China and India – the two major engines of world oil consumption growth”. Extension of the cuts-at least through the end of 2017-remains the base-case scenario at Stratas.
Oil traded near a three-month low as Russia’s energy minister said it’s too early to discuss extending an output-reduction deal a day after Saudi Arabia indicated that a rollover to the second half of the year is a near certainty.
The mismatch of bullish trader sentiment with the statistics of oversupply led to a rapid unwinding of those record long positions and a steep backslide in the price of crude.