Prices rise after report shows drop in US stocks
Oil prices rose yesterday after US data showed a surprise decline in inventories, suggesting that a global glut may be ending after moves by the Organisation of Petroleum Exporting Countries (Opec) to cut production.
Benchmark Brent crude oil was up 70 cents a barrel at $56.54 (Dh207) by 0855 GMT, recovering from a drop of 82 cents on Wednesday. US light crude was 70 cents higher at $54.29 a barrel.
Both benchmarks are near the top of relatively narrow $4 ranges that have contained trade so far this year, reflecting a period of low volatility since and other exporters agreed to cut output.
Opec and producers including Russia aim to reduce production by around 1.8 million barrels per day (bpd) in an attempt to drain an oversupply that has kept prices depressed for more than two years.
So far Opec appears to be sticking to its deal but other producers, notably US shale companies, have increased output, helping swell stocks in the United States, the world’s biggest oil consumer.
Industry data on Wednesday showed US crude inventories fell by 884,000 barrels in the week to February 17 to 512.7 million, compared with analyst expectations for an increase of 3.5 million barrels. US gasoline and distillate fuel stocks also fell, the American Petroleum Institute (API) said.
Tamas Varga, analyst at London brokerage PVM Oil Associates, said oil prices could rally further if the US government’s Energy Information Administration (EIA) also reports a fall in inventories when its data is published at 11am EST (1600 GMT) yesterday.
“If the US stock draws are confirmed by the EIA, we could see the market go much higher,” Varga said. But Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo, said the market needed to see that stocks outside the United States were also falling for prices to break out of their trading ranges. October 2015. Brent fell 1.6 per cent to $55.73 (Dh204.53) a barrel at 4:56pm in London on Wednesday.
A five-nation technical committee meeting in Vienna on Wednesday concluded that Opec had achieved more than 90 per cent of its promised cutbacks in January, and that the Stockpiles in the US have risen every week since January 1, while data on global storage levels has yet to be published. group’s partners implemented almost 60 per cent, according to delegates familiar with the matter who asked not to be identified.
The Opec agreement is working, compliance will increase to 100 per cent and oil inventories will drop this year, Barkindo said.
Equilibrium price
“We are going to go for much higher levels of compliance because of the very high level of stocks that we have brought over with us from 2016,” Barkindo said in a Bloomberg Television interview in London on Tuesday.
Oil is still far from an “equilibrium price” and inventories remained very high in January, but Opec’s not disappointed by the market reaction to its agreement.
US crude inventories have expanded by more than 39 million barrels this year to 518 million, the highest level in data going back to August 1982, according to the Energy Information Administration.
A further 3.25 million barrels were added last week, according to a Bloomberg survey before government data to be published yesterday.
That’s only a partial picture of the state of global oil supply, but the International Energy Agency has yet to publish an estimate of how the first month of Opec cuts affected international inventories.
Stocks held in rich industrialised countries — including the US — were falling through the fourth quarter of 2016 and dropped below 3 billion barrels in December for the first time in a year. Meanwhile, stockpiles in China and other emerging economies, plus volumes of fuel held at sea were still growing, the IEA said on February 10.
While solid supply data may be lacking, changes in benchmark oil prices do suggest Opec is succeeding. A pricing structure in Brent and West Texas Intermediate futures called contango — an indicator of oversupply where short-term prices are lower than long-term — is weakening and shifting toward the opposite condition known as backwardation — a sign of tighter supply.
Global oil stockpiles are starting to decline, but it’s “truly premature” to say whether Opec will extend its output cuts into the second half, Qatar’s Al Sada said in a Bloomberg Television interview in London.
Patrick Pouyanne, chief executive officer of French oil and gas producer Total SA, said Opec needs to do more if it really wants to eliminate the glut.
“If they want really to have an impact on the market, which means to have the inventories going down because inventories are quite high, it will have to be extended,” Pouyanne said Tuesday in a Bloomberg Television interview in New York. “I’m convinced that they will do it.”
Senior analyst at Danske Bank A/S