Oil Sinks to 3-Month Low as US Crude Reserves Swell

Oil prices ended little changed on Tuesday, as growing USA production expectations offset earlier gains after Saudi Arabia’s oil minister said market fundamentals were improving.

While OPEC is leading an effort by global producers to clear a glut this year by reducing output, the organization is getting ready to meet rising demand in coming years.

During a meeting in Vienna, Austria, on November 30, 2016, OPEC members made a decision to implement a new production target of 32.5 million barrels per day.

The ministers also discussed potential “oil-for-goods” swaps at the meeting, as well as the progress in implementing the oil production cap agreement.

However, Falih warned that the Kingdom would be careful not to be left alone with the task of implementing cuts, in turn subsidizing producers in other jurisdictions and its non-OPEC allies.

Instead, Barkindo said he and OPEC viewed the US shale revolution as a welcomed relief due to lost production at the time from Libya, Iran and Nigeria-his home country. Major contributors to the inventory rise are persistently high crude oil imports (100,000 bpd higher than a year ago) and what looks to be the highest levels of refinery maintenance in recent years, driving refinery demand down 400,000 bpd relative to a year ago.

Russian Federation itself cut its production at higher levels than it initially expected in January and February and plans to meet the goal to reach its commitment to gradually cut the output by 300,000 b/d by May. While other OPEC members such as Venezuela and Nigeria are in far worse shape economically, the Saudis too feel the pinch. Prominent energy players such as Exxon Mobil (XOM), Chevron (CVX) declined 1.8% and 1.97%, respectively, while Royal Dutch Shell (RDS.A) was one of the largest energy companies hit, losing 2.72%.

Overall, global oil prices have surged 15 percent since the cut deal announcement.

Oil prices in the USA fell below $50 for the first time since December as crude stockpiles climbed for a ninth consecutive month to its highest since 1982.

The government’s top energy forecasting agency boosted its outlook for domestic production by an additional 200,000 barrels a day this year and next.

“Now, this is a new dynamic and we have to find a place for everybody here”. According to its latest Monthly Oil Market Report published in February, total OECD commercial oil stocks fell in December 2016 (before the cuts took effect) to stand at 2.999 billion barrels.

USA shale drillers, on the other hand, are producing 9 million barrels per day if we see the USA government’s last week data.

Despite record exports in US crude oil, inventories have ballooned to a new high week after week, threatening a speedy rebalancing of the market.

That agreement was centred around lowering production in the first half of this year. In Europe, stocks at the Amsterdam-Rotterdam-Antwerp (ARA) are down 11.8% y/y to 43.94 million barrels. And unless investments globally rebound sharply, a new period of price volatility looms on the horizon. Global risk sentiment and dollar strength will drive prices in the short term given that fundamentals remain conflicting. The planets seem to be aligning for a bit of a washout of long positions.

The resistance level is at 50.00, followed by 50.50 and 51.00. Only sustained break below support would negate our bullish bias.