Oil rises on expected USA crude stocks draw

US benchmark West Texas Intermediate for February delivery was up by 0.3% to $53.47, while Brent crude futures were showing smaller gains of approximately 0.1%, trading at around $55.38 at 9:30 a.m. ET. The January contract expired at settlement.

The strategy seems to have been undertaken partly as a reaction to Asian refiners saying they would buy oil from alternative sources, including the US, if OPEC follows through with its reduction agreement: by shielding Asia, OPEC will supposedly compel USA producers to use more of their product to meet home-grown demand. Brent, the global benchmark, dropped 1.6% to $54.45 a barrel on London’s ICE Futures Exchange. The latter includes scheduled elections in both France and Germany against a turbulent backdrop, with Britain still negotiating its exit from the EU.

In a direct response to the OPEC deal with independent producers to cut 1.8 million barrels a day, Omani crude prices soared by more than 5 per cent on December 11. A group of non-OPEC nations, including Russia, Mexico, Kazakhstan and Oman have also committed to slash output.

Now output increases expected from Libya – which had been exempted from the OPEC deal – are at risk.

Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore, said “a light news week and the run-in to the holiday season” was keeping markets quiet.

Speculators raised their holdings of Brent crude oil futures to a record high last week.

“Before the OPEC agreement, the supply and demand outlook had gone from bullish to neutral”, he wrote. Opec itself says it expects the market to rebalance in the second half of 2017. Inventories of distillates, which include diesel, heating oil and other fuels, ran higher than the long-term average for all of 2016, hurting refining margins.

“While adherence to (OPEC) cutbacks could be quite high initially, we will be surprised by compliance much above 60 percent by the end of the first quarter as (U.S.) shale responds to a higher-price environment”, Ritterbusch said in a note.

With prices holding steady above $50 a barrel, analysts say US shalers will be more eager to open the spigots wider. This stood in contrast to the rest of the precious metals: silver prices and platinum prices both slipped roughly 0.5%, while palladium was the biggest loser, giving up almost 2.5% to fall below $680/oz. According to Clipperdata research director, Matt Smith, only 25 million barrels of oil is present in the Gulf of Mexico after the weather conditions slowed imports about two weeks ago. Saudi Arabia was responsible for nearly all of that, falling by a hefty 170,000 barrels a day.

Refiners in Asia remain very aware of the possibility of the huge shift in market dynamics and how in response to this summit, other suppliers could become more attractive; even OPEC is seeing a price rise in the hopes of boosting economies of countries which rely heavily on crude exports. All 13 analysts surveyed by The Wall Street Journal ahead of the report had forecast stockpiles to decline.