WTI futures sent reeling by smaller than expected decline in oil stocks

Gladys Abbott
April 20, 2017

Traders said that the rising USA crude production posed a concern that the oil supply overhang would continue, while the jump in gasoline stocks implied a stutter in demand.

In contrast to last week's reports that Saudi Arabia would be willing to extend the production cuts with which OPEC is trying to "fix" the global oversupply and lower-for-longer oil prices, The Wall Street Journal reported on Tuesday that Saudi Arabia's Energy Minister had told reporters in Riyadh on Monday that "it is premature to talk about extending the cut".

West Texas Intermediate for May delivery slipped 41 cents to $52 a barrel at 11:30 a.m. on the New York Mercantile Exchange.

Commercial crude inventories declined by 1 million barrels last week, after falling 2.2 million barrels the previous week, the Energy Department reported Wednesday. USA rig counts are up for 14 straight weeks returning output to levels not seen since April 2015.

The price increases on Thursday followed a more than 3.5 percent drop in both crude benchmarks during the previous session after the EIA reported surging gasoline inventories as well as another rise in US crude oil production to 9.25 million barrels per day (bpd), up nearly 10 percent since mid-2016 (C-OUT-T-EIA). The global benchmark crude traded at a $1.97 premium to June WTI.

US crude imports rose last week by 56,000 barrels per day. Output in the lower-48 states rose 21,000 barrels a day to 8.72 million, also the highest since August 2015.

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Of course, to reach those levels, the production cuts will need to be extended past June.

He said the UAE had reduced its oil production by over 200,000 barrels per day in March compared with October 2016, expecting that the six-month production cut there would be averaging at least 140,000 barrels per day in line with the UAE's compliance with the agreement.

USA supplies of crude are still near records and more than 100 million barrels higher than the five-year average for this time of the year, data compiled from the EIA show.

Refineries processed 16.9 million barrels a day, up 241,000 barrels from the prior week and the highest since the record 17.1 million was touched in January.

"It seems that the optimism in the oil market we have seen since the last few days of March is running out of steam", wrote Tamas Varga, PVM Oil Associates analyst, noting the "ever-increasing rise" in USA shale output.

"We should see an accelerating level of crude draws, something we've been waiting for a while", Cavan Yie, senior equity analyst at Manulife Asset Management Ltd.in Toronto, said by phone.

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