Oil prices steady, head for modest weekly rise

Oil prices finish week with modest gains

After a drop of almost 10 per cent last week, oil prices were mostly steady on Friday and were expected to finish the week with some modest gains.

Reuters reports crude traded in a narrow band this week, with Brent and WTI bouncing in a $2.50 range as investors weighed the OPEC supply cuts against the increase in US shale production.

Oil has not been able to reclaim the range that prevailed through most of this year prior to last week’s turbulent trading.  Unable to rebound to $53/barrel, US crude has been stuck at around $49/barrel.

Analysts believe unless there is a significant drawdown in inventories, it may be difficult for oil prices to rise to old levels.

Even after the Saudi oil minister said the OPEC supply cut could be expanded in to the second half of 2017, oil prices did not rebound.

“Neither a weaker dollar nor Saudi talk of doing ‘whatever it takes’ to bring inventories down to healthier levels is inspiring much buying,” Timothy Evans, analyst at Citi Futures told Reuters.

Evans added market sentiment may further weaken if the market does not rebound to the previous range.

Trading volume was low on Friday, with less than 100,000 futures contracts on CME changing hands by 11:03 a.m. EDT.

Brent was down slightly by 7 cents to $51.67/barrel and light US crude fell 3 cents to $48.72/barrel by 11:15 a.m.  Both benchmarks were on track for gains of about 20-30 cents.

In a Reuters poll, six of 10 analysts said they believed OPEC would extend the supply cut agreement past the deal’s original six-month period.

Saudi Arabia has cut more than it had originally agreed to in the pact, but some analysts wonder if the kingdom will continue to carry more than its agreed upon load if other OPEC and non-OPEC states fail to comply and US shale production increases.

Dan Smith of Oxford Economics told clients in a note “Saudi Arabia is not prepared to shoulder all of the burden of rebalancing the oil market and if others fail to cooperate then it may prove to be difficult for OPEC to extend cutbacks beyond the middle of this year.”

The November pact saw a number of OPEC nations and non-members agree to cut crude output by a combined 1.8 million b/d in the first half of 2017.  Despite the agreement, global oil stocks rose to 278 million barrels above the five-year average in January.

The Baker Hughes rig count for this week showed an increase of 14.

Later on Friday, the US Commodity Futures Trading Commission will release calculations of net long and short positions in the crude futures market.