Oil prices drop on rising US output, OPEC meeting

Oil prices dropped by over 1 per cent on Wednesday as the market awaits OPEC’s decision on a possible extension of its supply cut agreement. Anadarko photo.

Oil prices fall despite decline in US crude stocks

Oil prices fell on Wednesday in volatile trading as OPEC ministers offered conflicting statements on the possible extension of the OPEC supply cut agreement one day before the cartel meets in Vienna.

By the end of the session, benchmark Brent futures had fallen by 50 cents to $63.61/barrel and US WTI dropped 69 cents to $57.30/barrel. The Canadian Crude Index had fallen 76 cents to $40.25.

Oil prices fell despite a decline in US crude stocks. The US Energy Information Administration reported US oil inventories fell by 3.4 million barrels last week, however, gasoline and distillate stocks rose higher than anticipated.

“The rise in refined product inventories more than offsets the crude oil inventory drop, and there was a notable, if not spectacular, drop in implied gasoline demand on the week,” John Kilduff, partner at energy hedge fund Again Capital LLC told Reuters.

US crude stocks declined mostly because of the shutdown of the Keystone pipeline that sends Alberta crude to the United States. As a result of the shutdown, inventories at the Cushing, Oklahoma, oil hub were down by 2.9 million barrels, the largest weekly drawdown in eight years.

The 590,000 barrel per day (b/d)Keystone pipeline restarted on Tuesday.

In recent days, the oil market got the jitters as the OPEC meeting neared. The cartel is meeting in Vienna on Thursday to discuss extending the supply cut pact that has seen participants cut supply by a total of 1.8 million barrels per day.

The deal is currently set to expire in March 2018, but some OPEC members, including kingpin Saudi Arabia, are hoping to extend the agreement to the end of 2018.

After Kuwait’s Oil Minister Essam al-Marzouq said a key monitoring committee recommended prolonging the agreement to the end of next year, crude futures hit a session high.

But Russia’s Oil Minister Alexander Novak, concerned that extending the agreement could overheat the oil market, dampened the enthusiasm.

Russia is concerned that a strong oil price rally could give a big boost to Russia’s rouble, which, in turn, would harm Russia’s exports. Igor Sechin, head of Rosneft says he is also concerned participants of the pact may lose market share to the US.

Reuters reports the cartel is considering a clause that would allow it to review the possible extension at its meeting next spring should rising US production impact oil markets.

“There is growing anticipation of the output-cut agreement being extended for the rest of 2018; however, possibility for a review clause will be closely looked at,” Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics told Reuters.

US crude output has hit record highs in recent months. US EIA data showed that during the week ending Nov. 24, production hit 9.68 million b/d, just short of a 10 million-plus b/d record set in the early 1970’s.