Oil Slips as US Stockpiles Set Record Despite OPEC Cuts

Posted March 03, 2017

The EIA estimates that United States crude oil production will average 8,980,000 bpd and 9,530,000 bpd in 2017 and 2018, respectively.

The ratings agency has maintained its stress-case pricing of $30 per barrel for both WTI and Brent crude, $2.00 per million British thermal units for Henry Hub natural gas and $15 for natural gas liquids.

Steady gains in US crude oil inventories, coupled with an increase in exports from a key OPEC member, sent oil prices into deep red territory early Thursday. The EIA report contained few surprises. According to the latest data available, at the end of January its production was still 130,000 bpd above this quota. Analysts were looking for rates to have risen 0.3 percentage points.

Continue to look for crude oil to remain in its $5.00 range, established over the past two months.

Iraq's production dropped by 50,000 barrels to 4.44 million barrels a day, the survey showed. USA crude oil production averaged 8,880,000 bpd in 2016. At this time past year, that figure stood at 9.256 million b/d.

The increases in February mean OPEC output has averaged 32.19 million bpd, about 440,000 bpd above its supply target adjusted to remove Indonesia.

Distillates exports underpinned the stock draw, with shipments rising 277,000 b/d to 1.284 million b/d in the reporting week, according to the data.

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NYMEX April ultra-low sulfur diesel (ULSD) was relatively steady, trading 1.14 cents lower at $1.6285/gal.

Iraqi crude shipments rose 3 percent in the first half of February even after OPEC's second-biggest producer agreed to participate in global output cuts. Interestingly, this price level, according to unnamed OPEC sources, is considered sufficient to discourage US shale producers from building production further.

Exports of gasoline hit a record high, and domestic demand was around 6% lower than a year earlier. US stockpiles expanded to 520.2 million barrels, the most in weekly government data going back to 1982. "Physical players appear comfortable holding significant short derivative exposure against the now bloated inventories despite a narrowing contango* and largely consensus expectations that inventory drawdowns will be significant as the year progresses into higher demand season".

Oil prices extended losses Thursday, with bearish sentiment fueled by the latest increase in US crude stockpiles and production in addition to the strength of the dollar on currency markets.

In tonnes, oil output reached 42.434 million in February versus 46.992 million in January. Farther out, the front-sixth month spread narrowed to minus $1.54/b from minus $2.93/b in January.

"There seems to be a consensus within OPEC that the optimal crude oil price is as near as possible to the upper line of our shale band price range ($40-60 a barrel) but not significantly above", Olivier Jakob, a strategist at consultant Petromatrix, told Reuters. Besides, market has been benefiting from contango where prices for later delivery are higher than those for immediate dispatch.