Oil prices near 1-month peak as US inventories drop

April 5, 2017

by: Anjli Raval, Oil and Gas Correspondent

Oil prices were flirting with their highest level in nearly a month, prompted by a drop in US inventories suggesting output curbs by some of the world’s biggest producers are helping to reduce excess stockpiles.

US crude inventories fell 1.8m barrels last week, beating expectations, American Petroleum Institute data showed on Tuesday.

“As expectations of a drawdown in bulging US crude inventories trickled through the market, bulls returned to the fore and triggered a wave of buying,” said Stephen Brennock at London-based broker PVM.

Traders will look to US government data, due to be released on Wednesday, for further signals that production cuts by Opec and non-cartel countries are starting to reduce global stock levels.

Brent, the global benchmark, rose 52 cents to $54.69 a barrel, while US West Texas Intermediate edged 52 cents higher to $51.55. Both markers hit their highest since March 8 and Brent has rebounded from a low of $49.71 plumbed on March 22.

An unexpected outage at the Buzzard field in the North Sea also supported prices. The 180,000 b/d field is the largest contributor to the Forties crude stream that feeds into Brent prices.

Opec countries and producer nations such as Russia agreed to cut supplies in 2017 to reduce global inventories and bolster prices following a protracted oil industry downturn.

But the oil market has been caught in a tug of war between these cuts and a resurgent US shale industry, keeping prices in a tight range.

US drillers have been more active since prices rebounded above $50 following the deal, triggering concerns that excess inventories could persist even with the Saudi Arabia-led cuts.

The kingdom, the world’s top crude exporter, has cut prices of light crude it sells to Asia for two consecutive months in an effort to shore up demand in an oversupplied market.

The May official selling price for Arab Light to its core Asian customers was at a discount of 45 cents a barrel to the Oman-Dubai benchmark. This is 30 cents lower than last month.

Saudi Arabia, meanwhile, increased its prices for the same grade to the US for two straight months. This could suggest the kingdom is trying to encourage a reduction in US stockpiles.

The official selling price for Arab Light to the US was at a premium of 50 cents a barrel to the Argus Sour Crude Index. This is 30 cents higher than last month.

As worries about the pace and timing of the oil market rebalancing percolate, hedge funds have continued liquidating their large bullish bets on a higher oil price.

Although the easing of stockpiles has not been as swift as anticipated, some analysts say industry data now suggest Opec’s output curbs are tightening the oil market.

Stockpiles will fall even if the supply deal is not renewed when Opec next meets in May, say analysts at JBC energy.

“Even in the event of Opec/non-Opec not extending the cuts into [the second half of this year], the world would still continue to draw stocks at a mild pace of about 200,000 b/d until September, thereby lending support to prices one way or another,” they said.

Follow Anjli Raval on Twitter: @anjliraval