Oil prices drop to lowest since November on increased US stocks

Oil prices fell to their lowest point since the OPEC supply pact was confirmed on November 30, 2016. Pioneer Natural Resources photo.
Oil prices briefly fell below $50/barrel
Oil prices slipped to almost four-month lows in trading on Wednesday after the United States Energy Information Administration released its report showing a larger-than-expected increase in US crude inventories.
“The fact that this supply has increased almost 55 million barrels this year in the face of significant OPEC production cuts is evolving as a major bearish development that poses a significant threat to the viability of the OPEC agreement in our opinion,” Reuters reports Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.
Brent briefly fell below $50/barrel after the EIA said US inventories increased almost 5 million barrels to 533.1 million last week.
Brent prices later rose above the $50 mark, ending the day at $50.64. WTI crude futures for May were down 20 cents to $48.04. The session low was $47.01.
Reuters reports both benchmarks were in oversold territory and Brent and WTI hit their lowest marks since Nov. 30 when OPEC announced its supply cut agreement. So far, the OPEC pact has been ineffective in reducing the global crude glut.
“A persistent increase in U.S. oil production, together with a rise in imports from Canada, contributed toward a large build in crude oil inventories,” Abhishek Kumar, senior energy analyst at Interfax Energy in London told Reuters.
Kumar added “The market remains nervous about rising U.S. production, which is also reducing the effectiveness of output cuts by the OPEC and some non-OPEC countries.”
Many sources believe OPEC is favoring extending supply cuts, but while OPEC members have met their reduction pledges, non-OPEC states like Russia have not yet fully complied with the agreement.
Ole Hansen, head of commodity strategy at Saxo Bank told Reuters “OPEC has used up most of its arsenal of verbal weapons to support the market. One hundred per cent compliance by all is the only tool they have left and on that account they are struggling.”
In a note, US bank Jeffries said “OPEC’s market intervention has not yet resulted in significant visible inventory drawdowns, and the financial markets have lost patience.”
But, the bank went on to say that the market was undersupplied and should OPEC cuts be extended into the second half of 2017, inventories would draw down and prices would be above $60/barrel in Q4.
That, however, was tempered by expectations that US crude production will grow by 360,000 b/d in 2017 and 1 million b/d in 2018 and a price recovery could increase US shale activity.
US shale producers have added rigs and boosted the US weekly oil production to about 9.1 million b/d for the week ending March 10 from an average 8.9 million b/d in 2016, according to US data.