A look at the oil movement
US crude oil posted a modest loss on Thursday, but was still higher compared to the settlement recorded last Friday. Prices were supported by the drop in US inventories on Wednesday.
As of Thursday, NYMEX oil April contract gained US$ 0.26, or 0.54 per cent, at US$ 48.75 a barrel after climbing as high as US$ 49.62 per barrel. Brent oil January contract settled at US$ 51.74, a lost of US$ 0.37, or 0.72 per cent.
According to Energy Information Administration (EIA), crude oil stockpiles fell by 237,000 barrels in the week ending March 10, in line with reports by American Petroleum Institute (API). API reported a larger 531,000 barrel fall.
Meanwhile, industry research group Baker Hughes, said the number of rigs drilling for oil in the US increased by eight to 617 for the week ended March 10.
Crude prices have broken below its US$ 50-per-barrel psychological level recently, pressured by increasing US crude production.
Ironically, the higher US crude production was in some way, caused by higher crude prices which were contributed by the output- cut agreement by the Organisation of Petroleum Exporting Countries ( OPEC) and its allies.
The pick up in US’ production has caused frustrations for OPEC and its allies (such as Russia) in their effort to offset a glut of supplies in the market by cutting their own productions.
On Wednesday, prices ended their long losing streak by posting a more than two per cent rebound as the US Dollar weakened over the Federal Reserve’s decision to raise interest rates by 25 basis points, which some traders believed was a more hawkish move.
Meanwhile, the fall in US stockpiles also boosted prices as this was the first decline in 10 weeks, which gives the first big confirmation in US’ data that OPEC is highly committed towards its pact to cut production.
On Friday, Saudi Arabia’s energy minister, Khalid alFalih said that output cuts led by OPEC might be extended if necessary, giving traders some confidence.
For the following week, we expect the upside for the oil market to be limited amid the overall bearish fundamentals. Since prices have broken below the US$ 50-per-barrel level, the previous support is expected to become a resistance.
In the meantime, market watchers will continue to monitor data on US oil production and actions from OPEC officials for an idea on the market outlook.