USA crude futures continue to decline for 7th straight session

The slump in prices has occurred as more rigs are deployed to look for oil in the United States and as crude inventories in the USA, the world’s biggest oil consumer, have surged to a record.

“The number of active drilling rigs has increased steadily for months as oil prices inched upward-now with the recent oil price drops, it will be interesting to see if shale oil drillers will start shutting some oil taps as production becomes less lucrative”, Mr. Poulsen said. With all of the current geopolitical unknowns, it appears traders remain concerned that data reflecting seasonal moves indicate more structural trends.

While the Brent futures curve is in contango between June and December, the Oman curve is flat, reflecting the anticipated tightness of supply in medium crude. Spread across the span of the full year, that would imply a drop in inventories through 2017 of over 143 million barrels, just over half of the 278 million barrel glut in OECD nations that the group believes to exist. Instead, the dollar slid, helping gold and oil prices up higher.

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. For crude imports, volumes so far this year are close to 400,000 (kb/d) higher than a year ago; U.S. crude oil production has increased by 400 kb/d since September; and refinery runs fell from 17 mb/d at the start of the year to only 15.5 mb/d at the beginning of March.

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.

US weekly jobless claims are due at 8:30 a.m. “Especially if West Africa is weak and competing with US barrels into Asia”. The price would have to drop to the $30s or lower to dent the bottom line of many drillers now working USA shale fields, said Katherine Richard, the CEO of Warwick Energy Investment Group, which own stakes in more than 5,000 oil and natural gas wells.

The bottom line: The firm’s analysis of data indicates that demand remains on track with a demand forecast of 1.4 MMbbl/d for 2017. “However, the key to market performance this week is the response to the USA lift in rates”. This lessens the effect of any production cut, as the cuts are being made relative to the highest production levels in years. Prior to the Vienna agreement production from Opec countries was increasing relentlessly; from September to November inclusive output surged by an estimated 580 kb/d. “If at the time oil reserves begin to fall, both globally and in the USA, it means it works”, leading analyst at Bank of America Merrill Lynch Karen Kostanyan said. The Russians, the world’s largest producer daily at some 11 million barrels a day (bpd), have managed to cut a paltry 150,000 bpd of their target of 300,000 bpd and we are three months into the reduction period. 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 this is not likely. The Opec and IEA monthly reports are due this week and will provide further clarity on market fundamentals. During the CERAWeek Conference in Houston, despite openly trying to drive oil prices down and inflict mortal wounds on the shale producers, OPEC officials attempted to address their differences with Shale producers to cut down on market volatility.