Crude Oil Prices Pare Losses amid Geopolitical Risks, Rising U.S. Output

Brittany BishopApr 19, 2017

The production-cut agreement spurred a change in market structure that meant traders had less incentive to store oil at sea, prompting the flow of supplies floating on ships to onshore sites.

State-owned Saudi Arabian Oil Co lowered its official selling pricing for all grades to northwest Europe for the second straight month, along with all prices to the Mediterranean and some to Asia, against regional benchmarks. However, IEA noted in the absence of OPEC extending its production cuts, the second half of the year could be more volatile because of a tighter USA supply and lower global oil demand.

Subsequently, U.S. West Texas Intermediate (WTI) crude futures lost about 51 cents at $55.67 a barrel, after gaining 7 cents at $53.19 amid session on Thursday. As of 09:18 GMT today, the price is lower again by 0.46% to $52.42/b.

Baker Hughes BHI, +0.47% data Thursday showed that the US oil rig count rose for the 13th straight week in the week of April 13. That was the 13th straight weekly increase, and it took the total to its highest level in almost two years.

This makes for a roughly 3-fold year-on-year private investment increase (as compared to Quarter 1 2016) in the U.S. shale oil sector.

U.S. WTI futures fell 24 cents, settling at $52.41 a barrel.

"The battle between the "sheiks and the shale oil producers" is far from decided ... with all attempts by OPEC to achieve a lasting production deficit on the oil market being torpedoed by non-OPEC producers - first and foremost the USA", analysts at Commerzbank wrote.

"Surging crude imports in March was likely driven by higher imports by independent refineries as they raised refinery runs to a record high of 64.6% of capacity at a time when state-owned refiners reduced utilization due to planned maintenance", said Wang Zhuwei, senior analyst with S&P Global Platts China Oil Analytics.

Chinese industry is not the growth engine it once was.

USA shale production in May was likely to post the biggest monthly gain in more than two years, government data showed on Monday, as producers stepped up the pace of drilling, with oil prices holding above $50 a barrel.

This brought China's net oil product exports in March to 1.97 million mt, up 51.5% year on year and higher by 5.3% from February.

"While US inventories are going to decline, they are falling from a much higher level than they have over the past two years". Some traders may also be disappointed by reported comments from Saudi Arabia's Energy Minister Khalid al-Falih, who said it's too early to talk about an extension to the production-cut agreement led by OPEC, he said. "China believes that escalating geopolitical tensions and extended OPEC cuts will ultimately drive up crude prices in H2".

There is no oil crisis, there is no shortage. However, the market needs time for the full impact of the big supply cuts to be felt.

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