Published: Thu, May 18, 2017
Worldwide | By Gretchen Simon

Oil prices down despite decreasing USA crude stocks

That's countering optimism spurred by recent government data showing a sixth straight weekly drop in USA stockpiles and the first decline in 13 weeks for crude production, ending the longest stretch of gains since 2012.

As per the UBS oil analyst Giovanni Staunovo, there is 60% probability of OPEC extending output cuts and this should help tighten the oil market.

Global stockpiles have remained stubbornly high despite the curbs, in part because USA production has climbed 10 per cent since mid-2016 to 9.3 million bpd, not far off that of top producers Russian Federation and Saudi Arabia.

Traders came in early Wednesday with a bearish tilt because the weekly inventories report from the American Petroleum Institute for the week-ending May 12, released late Tuesday, showed a surprise crude oil build rather than the estimated draw down.

Under the current deal OPEC, Russia and other producers agreed to cut output by 1.8 million barrels per day (bpd) for six months from January 1.

This decrease was lower than the analysts expected. USA crude oi lost US$1.02 to reach a low of US$48.05 was last trading 20 cents lower at US$48.87.

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On Tuesday the International Energy Agency said supply and demand in the oil market are close to matching up but warned rising United States supply could mitigate the OPEC-led production cuts.

The US Energy Information Administration (EIA) said on Wednesday that crude inventories fell 1.8-million barrels for the week to May 12, to 520.8-million barrels. Riyadh and Moscow say they should be extended until March. An extension to the OPEC deal will be the main point of conversation when the 13 member countries meet in Vienna on May 25. Nevertheless, they've effectively become the new global swing producers due to their ability to ramp up output much faster than conventional producers.

The second source also saw a modest price recovery as likely in the summer months when US gasoline demand seasonally rises, citing factors such as a likely drawdown in inventories. The curbs, in place since the beginning of the year, have failed to sustain higher prices as USA competitors have increased supplies.

Brent crude was down 15 cents at $51.50 per barrel by 0851 GMT.

"Markets seem to be holding their breath ahead of the OPEC meeting next week", said Michael Poulsen, oil risk manager at Denmark-based Global Risk Management. It could mirror the market situation in 2014 when similar anxieties were unfounded, eventually giving way to a demand increase of 1.3m barrels of oil a day, he added.

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