Oil inches up, but rising Russian output still weighs

Oil prices inched up on Tuesday as rising Russian output and expectations of a reduction in Saudi Arabian crude prices were offset by a potential slowdown in US production.

US WTI crude futures CLc1 were at $63.27 a barrel at 6.30 pm, up 26 cents, or 0.41 percent, from their previous settlement.

Greg McKenna, chief market strategist at futures brokerage AxiTrader, said traders were wary of the fact that the market was still holding large amounts of long positions which will need to be sold off at some stage.

“That makes prices vulnerable to bad news,” he said, pointing to rising Russian production and a likely drop in Saudi physical crude prices.

Brent crude reached a 2018 high of $71.28 in January but has since struggled to pass that level. Two rallies last week ran out of steam just above $71.

There was also pressure coming from the physical market, where top exporter Saudi Arabia is expected to cut prices for all crude grades it sells to Asia in May.

This came amid rising supplies. Top producer Russia pumped 10.97 million barrels per day (bpd) of crude in March, up from 10.95 million bpd in February, official data showed.

One of the key price drivers going forward will be crude output from US C-OUT-T-EIA, which has risen by almost a quarter since mid-2016 to 10.43 million bpd, overtaking Saudi Arabia’s output and coming in just shy of Russia’s.

A dip in drilling activity for new production could imply that the relentless rise in US production could be tapering off toward the middle of the year.