Oil prices up on possible US inventory declines, lower Saudi exports

Oil prices up almost 1 per cent Monday

Oil prices rose almost 1 per cent in Monday trading as investors learned of a possible decrease in United States crude stocks and Saudi Arabia’s plan to limit crude exports to some Asian buyers and deeper cuts to the US in July.

Brent crude futures were up 20 cents to $48.35 by 11:51 a.m. EDT, after hitting a session high of $49.15.  US WTI crude futures were up 30 cents to $46.13 after peaking at $46.71 earlier in the day.

According to Reuters, Saudi Arabia, the world’s top oil exporter will cut crude allocations to Asia in July to a total of about 300,000 barrels per day (b/d), deeper than in June.  A Reuters source said the Saudis will cut volumes to the US by about 35 per cent next month.

Market intelligence firm Genscape data estimates a draw of over 1.8 million barrels at the Cushing, Oklahoma delivery point for US crude futures last week.

Last week oil prices plunged by about 5 per cent after US Energy Information Administration data showed a surprise build in US crude stocks.

“We think the market’s negative reaction to a one-week counter-seasonal crude inventory build of 3.3 million barrels was excessive, at least relative to its lack of positive reaction to draws amounting to 10.9 million barrels in the previous two weeks of data,” Standard Chartered analysts said in a note.

“We do not expect a repeat of the inventory increase this week; rather we see a further large inventory draw.”

Some traders and analysts are cagey about the boost in oil prices, saying it may be technical in nature and might prove fleeting.

“When you start to approach $45 a barrel in WTI, you’re in an area where you do find some price support and I think there has been some evidence last week of investment flows coming back into crude oil,” Petromatrix strategist Olivier Jakob told Reuters.

“You have to be careful not to be too optimistic for now,” he added. “Physical differentials are still under pressure and the time structure is still under pressure in Brent. It’s a bit premature to call for much higher oil prices.”

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Traders say the price increase came at a time when data showed speculative traders had boosted their investment in crude futures by taking on large volumes of long positions.

“Oil bulls have reset for a technical bounce,” Stephen Schork, author of the Schork Report told Reuters.

Despite financial traders having confidence in rising oil prices, the physical market is under pressure due to increasing US drilling.

Last week, Baker Hughes reported US drillers added eight oil rigs, bringing the total count to 741, the highest since 2015.

US output has increased by over 10 per cent since mid-2016 and has all but overshadowed OPEC’s supply cut pact.