Oil retreats, set to become worst-performing asset in 1Q
- Author: Zachary Reyes Apr 10, 2017,
Apr 10, 2017, 12:52
Oil prices had gained momentum earlier this week on the back of growing sense that OPEC and non-OPEC oil production giant Russian Federation would agree to continue their production cut deal seeking to drive prices higher. A couple more weeks of drawdowns would mean gasoline inventories would no longer appear as bloated as they have been since the beginning of 2016.
OPEC and non-OPEC producers including Russian Federation agreed late a year ago to cut output by nearly 1.8 million barrels per day in the first half of 2017 to ease a global supply overhang and prop up prices. The Energy Information Administration believes drillers across the country could raise output to 9.44 million barrels a day this year, up by 630,000 compared to the fourth quarter of 2016.
The U.S. crude benchmark rose 84 cents to settle at $50.35 a barrel on the New York Mercantile Exchange.
These bullish trends could be overwhelmed by other forces, such as weaker-than-expected Chinese demand, supply growth in the US, and above all the failure of OPEC to extend its deal beyond June.
But fears of oversupply still hang over the market as Opec grapples to tighten the oil market because inventories in many parts of the world are at, or near record highs and as United States production rises.
Eleven non-OPEC oil producers that joined a global deal to reduce output to boost prices delivered only 64% of promised cuts in February, an industry source said March 20, which was far below the roughly 90% level of compliance from OPEC members.
Brent crude oil futures rose 0.54 dollar or 1.03 percent to close at USD 52.96 a barrel at NYMEX.
The Canadian dollar has been remarkably resilient despite the decline in crude prices.
Ole Hansen, head of Commodity Strategy of Saxo Bank: "Crude oil is likely to remain range-bound for the foreseeable future". The threat of rising US shale production could also weigh on market sentiment.
Both WTI and Brent trade roughly 7% lower year to date, according to FactSet data.
OPEC agreed to reduce oil production by 1.2 million barrels per day during the first six months. Output had dropped the month before by 91,000 barrels a day.
The latest comments from Kuwait's oil minister are bolstering confidence in the Organisation of Petroleum Exporting Countries' commitment to drain swollen stockpiles ahead of the group's next formal ministerial meeting on May 25 in Vienna.
"If we see the prices go up as a result of any push from the producer ...we will see more oil coming to the market, not just from the USA; we will also see Brazilian and Canadian oil coming to the market", he added.