Oil Prices Fall as U.S. Inventories Rise

Posted by Joseph Keefe

U.S. crude stocks rose by 564,000 barrels last week
-EIA.

Oil prices fell on Friday after U.S. crude inventories rose for a
seventh week, showing that the market is still struggling to ease
oversupply despite many producers' efforts to rein in production.

U.S. crude stocks rose by 564,000 barrels in the week to Feb. 17,
the Energy Information Administration (EIA) said, though the
increase was less than the 3.5 million barrels expected by
analysts.

The continued rise in U.S. inventories comes as members of the
Organization of the Petroleum Exporting Countries (OPEC) and
other producers have cut output.

Their joint compliance with a production-reduction deal reached
at the end of last year was around 86 percent in January,
according to OPEC sources quoting results from a technical
committee meeting held this week.

The United States, which is not part of the deal, continues to
ramp up production. Analysts at ING said they expect U.S. output
to keep rising while prices remain strong enough to encourage
further drilling.

Benchmark Brent crude oil was down 30 cents at $56.28 a barrel by
1149 GMT, while U.S. West Texas Intermediate dropped by 26 cents
to $54.19.

"Prices continue to retreat on repeated failure to rise above the
upper end of their trading ranges and yesterday's inventory data
also weighs," said Carsten Fritsch, analyst at Commerzbank in
Frankfurt.

However, signs have begun to emerge that traders are depleting
storage levels that soared while oil prices were weak.

In the United States, traders are draining the priciest storage
tanks as strengthening markets make it unprofitable to store for
future sale and as cuts in global production open export
opportunities.

"Current oil prices are neither sustainable for OPEC or the
industry," AB Bernstein said in a note. "As such, inventories
will have to fall, which we expect will be clearer in the spring
after the seasonal build."

In Asia, traders are selling oil held in tankers anchored off
Malaysia, Singapore and Indonesia.

More than 12 million barrels of oil has been taken out of storage
in tankers berthed off Southeast Asian countries this month,
shipping data on Thomson Reuters Eikon shows.

Analysts at LBBW said that the continued growth in U.S.
production and oil prices that look to have reached a technical
ceiling have led them to cut their year-end Brent price forecast
by $5 to $55 a barrel.

"Most market participants realise that the good news from OPEC
seems to be priced in; therefore, and because of the shale
comeback (in the U.S.), we reduced our forecast," said LBBW oil
analyst Frank Klumpp.

By Karolin Schaps

Feb 24, 2017

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