Crude Oil Tethered To USD53, US Inventories At Record Highs

Markets early Wednesday were reacting to reports from the American Petroleum Institute that crude oil inventories in the United States continue to surge, pointing to possible short-term supply concerns in the world's No. 1 economy.

Comparative inventory analysis suggests that the current ~$53 per barrel WTI oil price is at least $6 per barrel too high. A 3.5 million-barrel gain was forecast by analysts surveyed by Bloomberg before the report. The drop indicates a 90% compliance level so far by producers who had agreed to curtail their output-in line with figures reported by the International Energy Agency last week, and well above what many market participants were expecting. There are a couple of things to consider.

When oil prices (NYSEARCA:USO) (NYSEARCA:SCO) (NYSEARCA:BNO) (NYSEARCA:DBO) (NYSEARCA:OIL) (NYSEARCA:DTO) (NYSEARCA:DWT) (NYSEARCA:OLEM) (NYSEARCA:OLO) fell on Monday ( highest fall since mid- January), many market insiders believed that this fall was due to rising U.S rig counts and increasing U.S oil production.

Last week's 13.8 million barrel addition to US storage was the second largest in history.

"With non-OPEC poised to grow again, we estimate OPEC will need to increase oil output by just 2.2 million b/d [barrels per day] to meet global incremental oil demand of about 5.5 million b/d over the 2017-22 period".


Also, an oil price rise may not be entirely bad for airlines. The third quarter is also the time of year when producers in the North Sea reduce production in order to perform maintenance. This new normal for fuel prices means airlines can continue to enjoy profitability, though not as high as that seen in 2015 and 2016. In market terms, the futures and options markets will flip from contango to backwardation. Rebalancing the crude oil market is an iffy business and definitely not a place for amateurs.

Crude futures in NY closed Monday down 93 cents from the end of the previous week at $52.93 a barrel, continuing to hover around $53 in early trading on Tuesday. The 52-week range on March futures is $39.20 to $56.24. In January, OPEC production decreased by 890,000 barrels per day (bpd), to average 32.139 million bpd. The total for commercial petroleum inventories climbed by 11.1 million barrels from the prior week.

U.S. crude imports fell last week by 1.34 million barrels per day. Refineries operated at 85.4% of the operable capacity last week.

Prices have hugged USD53 for the past month.

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