Oil prices rise as supply tightens

Official government inventory data for last week will be released on Wednesday at 10:30 a.m. EDT (1430 GMT).

Oil prices ended higher Tuesday, buoyed by expectations that US government data this week will show that domestic supplies of crude oil fell for an eighth-consecutive week.

OPEC and 10 producers outside the cartel, including Russian Federation, first agreed late past year to cap production at around 1.8 million barrels a day lower than peak October 16 levels, with the aim of reining in the global oil glut and sending prices higher. Gasoline stocks increased marginally to 231.1 million barrels while distillate stocks were up 0.7 million last week. As for new sanctions on Iran, Kilduff said the other Western powers that took part in the deal are unlikely to join the U.S.in new sanctions, which will curb any adverse effect on Iran’s oil industry. Total volume traded was about 26 percent below the 100-day average. Prices are being supported at $47.22. Some producers even hedged some of their 2018 production when prices were at their recent peaks. U.S. West Texas Intermediate crude futures were trading at $47.67/bbl, down 16 cents. Higher prices stem from an OPEC-led initiative to reduce global supplies by 1.8 million a barrel from January 2017 through March next year. A likely first range for WTI is between 46 and 50 $/barrel (short term) and a second broader range between 42 and 54 $/barrel (medium term). For one, the stockpiles are now below last year’s stash but they are still very much above the 5-year average for oil stockpiles.

The Financial Times remarked that “Despite bullish factors, some analysts are still warning the market could get caught out as it has several times this year”. Another 1 million barrels per day in production cuts will have to be put in place to draw down that much in a six-month period.

The price of OPEC basket of 14 crudes stood at $49.8 a barrel on Monday, compared with $48.86 the previous day, according to OPEC Secretariat calculations. But by 2011 the daily production levels had fallen to 45,000 barrels. Analysts were looking for refinery usage of 95.5% for the week.

The oil minister of Kuwait, which is participating in OPEC-led production cuts, said USA crude stocks were falling more than expected because output cuts were taking effect.

Gasoline demand fell 2.8% week-over-week and 240.0 Mbpd, or 2.5%, year-over-year. Brent was up 0.7% to $52.22. As of last night’s close, Chevron shares are up about 5.2% over the past 12 months. Looking ahead, the short-term bias for oil remains positive, but the overall price action is set to remain choppy in the coming week as well.