Oil Slips as U.S. Crude Stocks Rise

02/17/17 06:18 AM EST
By Sarah McFarlane and Jenny W. Hsu 

Crude futures eased on Friday, caught between larger-than-expected growth in U.S. crude stocks and reports that the Organization of the Petroleum Exporting Countries could consider extending its production cuts beyond the six-month deal.

Brent crude, the global oil benchmark, fell 0.4% to $55.40 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.3% at $53.20 a barrel.

Oil prices have traded within a tight range since the start of the year, with investors monitoring the extent to which OPEC members have reduced production. The cartel, along with other key producers including Russia, agreed last year to cut around 1.8 million barrels a day of oil output starting in January.

The six-month deal sent prices around 20% higher, which triggered producers outside of the pact, including in the U.S., to increase their output. The agreement included the possibility to extend the cuts by another six months.

Harry Tchilinguirian, head of commodity strategy at BNP Paribas, estimated OPEC's compliance with the targeted cuts at around 90%.

"At current levels of compliance and for just a six-month period, it will not allow them to achieve a goal of reducing global inventories back to their five-year average, especially when you think about supply growing elsewhere diluting the impact of the cuts they are making," said Mr. Tchilinguirian.

"Inasmuch as these OPEC efforts have stabilized the price and managed to push it in excess of $50, they have also invited production back in from sources that we thought would have contracted otherwise."

On Thursday, Reuters reported that OPEC sources said the cartel could extend the six-month deal to cut supply, or make more severe cuts, if oil stocks don't drop by around 300 million barrels.

According to OPEC's latest oil report, commercial oil stocks of the Organization for Economic Cooperation and Development countries fell by 33.8 million barrels in December for the fifth consecutive month, but at 2.9 billion barrels, it is still around 13 million barrels above the level a year ago and 299 million barrels above the latest five-year average.

Data published by the U.S. Energy Information Administration on Wednesday showed U.S. crude stocks grew by 9.5 million barrels in the week ended Friday Feb. 10, a bearish indicator for global stocks.

Talks of possibly extending the supply cut come at time when U.S. production is showing a strong revival. The EIA forecasts that U.S. output to average 9 million barrels a day this year and grow another 500,000 barrels a day next year.

However, some analysts such as Vyanne Lai at National Australia Bank are forecasting a much faster growth rate, putting this year's production at 9.3 million to 9.4 million barrels a day.

"U.S. shale producers have a tendency of responding quickly to a period of sustained stability in prices," she said.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--fell 1.5% to $1.50 a gallon. ICE gasoil changed hands at $490.75 a metric ton, down $0.25 from the previous settlement.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

 

(END) Dow Jones Newswires

February 17, 2017 06:18 ET (11:18 GMT)

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