Oil prices rise amid expected drop in stocks

Volatility continues to be a dominating tendency in the “black gold” market, which is caught between contradictory trends of persisting abundance of oil and joint efforts of major producers to cut output levels.

Oil futures climbed nearly 1 percent on February 23 affected by American Petroleum Institute (API) data on a surprise decline in U.S. crude stocks as imports fell.

Brent crude was up 40 cents, or 0.7 percent, at $56.24, while the U.S. West Texas Intermediate crude April contract rose some 41 cents, or 0.8 percent, to $54.00 a barrel, Reuters reported. The price of a barrel of Azeri Light crude oil decreased $1.23 to stand at $57.16.

API data became supportive for the view that a global glut is close to end. The data showed that crude inventories fell by almost 884,000 barrels last week to 512.7 million, while expectations were for an increase of 3.5 million barrels. Market watchdogs are eagerly waiting for official data from the U.S. Department of Energy's Energy Information Administration (EIA).

The market is still full of doubts and concerns as though OPEC is sticking to the deal, other producers, particularly the U.S. are increasing output levels, helping stocks to swell.

The OPEC deal is deemed to be successful as it has already taken nearly 1 million bpd off of the market, but against expectations, even at this point the market is still far from balance, while the current oil prices are still below expected and needed levels. Besides, there are also worries that non-OPEC members aren't cutting production as much as promised.

Eleven non-OPEC oil producers that joined the OPEC deal have reportedly delivered at least 60 percent of promised curbs so far. However, the comments of Qatar's oil minister, Mohammed Saleh Al Sada raised doubts over the compliance of producers to their reduction quotas. Speaking at the International Petroleum Week in London, he said some members were producing cuts that amounted to about 50 percent of what they promised, mentioning such countries as Russia and Mexico.

“Compliance of non-OPEC producers is estimated at around 50 percent however, the mechanism of calculating it is not as articulated as OPEC. I think the adherence maybe more than that," he said.

The Cartel in tandem with other producers aims to reduce production by around 1.8 million bpd to oust the problem of oil glut that kept prices depressed for more than two years. OPEC members are expected to come together in May, while the main focus will be on global inventories and whether output cuts have managed to lower them. Experts believe that unless OPEC extends its production cut for another six months, oil prices could easily go back to the bottom low level of $30s, where it was two years ago.

Currently there is little sign that more supply will be taken off the market as OPEC officials say it is still too early to say whether oil producers will extend their output cuts.