IEA says oil prices will not jump sharply, despite OPEC supply cuts

Oil prices crept up on Wednesday amid supply disruptions in Africa and renewed commitments by major oil producers to rein in production.

West Texas Intermediate (WTI) crude oil, the main U.S. benchmark, was trading 0.01% lower at $53.98 per barrel recently while Brent crude, the worldwide gauge, was 0.02% higher at $56.52 per barrel.

May Brent crude LCOK7, +1.01% on London's ICE Futures exchange rose 28 cents, or 0.5%, to $52.70, with the contract set to expire at Friday's settlement.

Economic data showed that the number of Americans filing for unemployment benefits fell less than expected last week, with initial claims slipping 3,000 to 258,000 for the week ended March 25. Recent changes in sentiment warn that the current Oil - US Crude price trend may soon reverse higher despite the fact traders remain net-long.

I have written quite a bit about the bearish case for crude oil this year, but there are a few signs that, when put together, add up to a reasonable case for higher prices.

Signs of growing USA fuel demand are propping up oil above $49 a barrel, with more refinery purchases seen helping ease a glut in American stockpiles. Prices, which rallied by 2.3% Wednesday, were poised to settle at another three-week high. Although inventories were at a fresh record high, there was relief that the data was below expectations and fuel inventories also declined which helped underpin market confidence.

Oil prices extended gains on Wednesday despite an increase in US crude inventories, lifted by Libyan supply disruptions and expectations of an OPEC-led output cut being extended. Crude-oil stockpiles rose a less-than-expected 900,000 barrels last week by the government's count.

The Opec-led supply cuts are gradually restoring the market to balance, the group's Secretary-General Mohammad Barkindo said in a statement.

"If a similar picture is painted by the official data, the oil price should be able to hold its own at well above the $50 per barrel mark until the OPEC production estimates for March are released", analysts at Commerzbank said.

We argued that the logic for OPEC to extend the production cut agreement makes all the sense in the world especially after media sources reported that Saudi Arabia will follow through with its ambition of IPOing Saudi Aramco.

So while actual production may increase, what affects the market is the amount of oil exported. Low tanker rates for most of 2016 helped to narrow the price spread needed to allow for an economically attractive trade between the United States and overseas markets.

Kuwait oil minister Essam al-Marzouq said his country was among several nations supporting the extension of a deal between the Organization of the Petroleum Exporting Countries and other exporters to limit output, state news agency KUNA reported. At the same time, we have seen a rapid increase in the number of active oil rigs in U.S. The total number now stands at 652 after an increase of 21 rigs last week according to Baker Hughes.

JBC Energy said that given prices have been bobbing in a narrow range, the growth in US oil-drilling activity seen so far this year may lose steam over the next few months.

  • Arturo Norris