Oil prices steady, weak fundamentals weigh after volatile week

The crude market has been very volatile lately amid uncertainty about whether major producers will meet to discuss action to raise oil prices. Morgan Stanley analysts, including Adam Longson, head of energy commodity research, argue that investors are putting too much emphasis on fundamental factors and are not paying attention to an appreciating USA dollar.

The story goes on to suggest that might set the stage for a rebound as lower prices have stimulated global demand, with Citigroup suggesting “Oil is the trade of the year”.

In a sign that lower oil prices are having a limited impact on production, only around 100,000 barrels per day of oil production has been shut in globally to date – less than 0.1 percent of global output – according to Wood Mackenzie.

“Oil prices for the day will really depend on whether the dollar continues to weaken”, said Daniel Ang, an investment analyst at Phillip Futures, adding that US nonfarm payroll data due Friday will determine the currency’s strength.

According to Tony Nunan, oil risk manager at Mitsubishi Corp.in Tokyo, “The global inventory situation is going to get worse in the second quarter as we hit the peak refining rate at the end of this quarter”. US supplies rose above 500 million barrels through January 29, the highest level since 1930 in monthly government data compiled by the Energy Information Administration.

The increase, the fourth in a row, more than doubled expectations for an increase of 3.75 million barrels. It was generally accepted that nothing would be accomplished unless Russian Federation and Saudi Arabia were on-board. In a battle to retain market share, OPEC and non-OPEC producers are likely to remain resilient in their production strategy, which they have been through the downturn that saw prices slash 70% from mid-2014 highs.

When front month futures prices reach large discounts to contracts for delivery of crude oil months or years in the future, market participants may store oil on ships, also known as floating storage.

News Friday that the number of oil rigs in the field in the United States dropped sharply last week, by 31 rigs as reported by Baker Hughes, did not brighten the market s outlook.

Light, sweet crude for March delivery fell 83 cents, or 2.6%, to $30.89 a barrel on the New York Mercantile Exchange.