Oil extends gains as dollar and USA inventories fall

“The recent growth in USA inventories, in part due to United States supply growth, suggests to us that OPEC needs to extend its agreement beyond six months to ensure global oil inventories decline to establish a firm foundation for oil prices about $50/bbl”.

The Saudi Arabian minister of petroleum, Khalid Al Falih, was in the USA this week where he continued to call for full compliance, reminding all players of the bigger picture for sustained economic growth.

The IEA said also that it still expects demand this year to grow by 1.4 million barrels per day, though it says it has changed its forecast to reflect expectations that the demand growth will come slowly and be skewed toward the end of the year.

Data on Wednesday showing a modest slide in crude stockpiles in the United States, the world’s biggest oil consumer, had helped lift oil prices after a week-long rout spurred by record USA inventories pushed them to three-month lows. Year-to-date, USA production has increased by practically 2%.

Crude futures gained on Friday, steadying after a volatile first half of the month, with resilient output from the USA and uncertainty over OPEC’s commitment to production cuts keeping investors cautious. High market prices are now being supported by OPEC cutbacks, and these higher profits are funding the growth of American drilling.

Some members of OPEC are producing more oil and Saudi Arabia has breached a psychological threshold for February, based on the organization’s first report since enacting production limits for members of the group.

Indian basket crude oil price has fallen by around 10 per cent in last 15 days raising hope of some relief on petrol and diesel prices in coming days.

The U.S. oil rig count rose by 14 to 631 rigs, the highest level since September 2015, according to data published Friday by Baker Hughes Inc.

Oil prices have risen for the second day as U.S. data showed a fall in crude inventories after it had soared for nine consecutive weeks.

“Saudi Arabian Energy Minister Khalid Al-Falih continued to express concern about high global inventories”, ANZ said in a note.

The market remains hyper-focused on USA inventory levels, but this number only tells part of the story. Crude for delivery in January 2018 is only 70 cents more expensive than that for delivery next May, making those floating storage vessels unprofitable. Until now, the kingdom had been seen as the force keeping OPEC compliant with its production-cut agreement. “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 US$60 or US$70”.

It’s likely US crude inventories will increase during the rest of seasonal refinery maintenance season, Bob Yawger, director of the futures division at Mizuho Securities USA Inc.in NY, said by telephone.

What about some big green energy news on the day where we are all wearin’ the green! “Investors and analysts believe that the IEA will have also underestimated demand this year, suggesting that more oil is being bought than the market now believes”.