Oil Down as Rising U.S. Output Offsets OPEC Cuts

Posted by Joseph Keefe

Saudi wants Brent at $60, Russia cuts Feb
output.

Global oil prices dipped on Tuesday but continued to trade in a
tight range with the OPEC-led output cuts offset by increasing
crude production from the United States.

The Organization of the Petroleum Exporting Countries has so far
surprised the market by showing record compliance with oil-output
curbs, and could improve in coming months as the biggest laggards
- the United Arab Emirates and Iraq - pledge to catch up quickly
with their targets.

But while the Nov. 30 agreement to reduce production prompted oil
prices to rise $10 a barrel, they have been trading in a narrow
$3 range in recent weeks.

Benchmarks Brent and West Texas Intermediate crude oil on Tuesday
traded several cents on either side of the previous day's close.
By 1130 GMT, Brent was 16 cents lower at $55.77 a barrel while
the U.S. benchmark was 9 cents lower at $53.96.

"Oil is well and truly stuck and the falling futures volumes does
not indicate that we have much of a bull-bear fight either," Saxo
Bank head of commodity strategy Ole Hansen said.

"Having failed on a couple of occasions to break higher it is
only natural to see it correct lower. I'm looking for a
retracement to $55 on Brent and $52.70 on WTI."

OPEC agreed to curb output by about 1.2 million barrels per day
(bpd) from Jan. 1, the first cut in eight years.

In addition, 11 non-OPEC oil producers have promised to cut their
output - Russia reduced production by 124,000 barrels per day
this month compared with October levels, Interfax reported on
Tuesday citing a source familiar with the data.

Several analysts noted record high bets on rising Brent and WTI
prices, as showed by data from the InterContinental Exchange and
the U.S. Commodity Futures Trading Commission (CFTC).

"Increasingly, the high degree of speculative interest is hanging
over oil prices like the sword of Damocles. If financial
investors were to unwind their positions, a sharp fall in prices
would be on the cards," Commerzbank said in a note to clients.

Broadly, analysts and economists expect an average 2017 Brent
price of 57.52 a barrel, according to a Reuters poll issued on
Tuesday.

Oil industry and OPEC country sources told Reuters Saudi Arabia
wanted crude prices to rise to $60 a barrel this year, a level it
saw as encouraging investments but not spurring a fresh surge in
U.S. shale production.

But a report from consultancy Rystad Energy issued earlier this
month said the break-even price for U.S. shale oil producers fell
last year to an average $35 per barrel.

U.S. producers boosted crude production to over 9 million bpd
during the week ended Feb. 17 for the first time since April
2016, according to federal data. U.S. drillers were operating 602
rigs last week, the most since October 2015, energy services firm
Baker Hughes said on Friday.

By Sabina Zawadzki

Feb 28, 2017

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