Oil prices steady as increased US supply offsets Saudi comments

Oil prices slightly down in Tuesday trading

Oil prices fell by pennies in trading on Tuesday as growing US crude production cancelled out morning gains fuelled by Saudi Arabia’s oil minister comments on improving market fundamentals.

Also affecting oil prices, the American Petroleum Institute reported US crude stocks rose last week by 11.6 million barrels, or over five times analysts’ forecasts.

Should the build be confirmed by the US Energy Information Administration on Wednesday, it would be the ninth straight weekly rise in already record high inventories.

Brent futures LCOc1 slipped nine cents, or 0.2 per cent, settling in at $55.92/barrel and West Texas Intermediate crude lost six cents, or 0.1 per cent to end at $53.14.

Both benchmarks were down about 0.7 per cent after the API data was released.

At the CERAWeek conference in Houston, Khalid Al-Falih, Saudi Arabia’s oil minister, said the OPEC supply cut deal has cut into the global oil glut and helped boost prices.

Falih added the drop in global supply only happened because his country dropped its supply to under 10 million b/d, which was more than originally pledged.

He said OPEC would not allow its rivals to take advantage of cuts to underwrite their own production investments. OPEC is scheduled to meet again in Vienna in May, when it may consider extending the production cuts.

Phil Davis, managing partner at PSW Investments in New Jersey told Reuters “OPEC has unrealistic expectation as to what their production cuts can achieve.”

He noted that over the next two years, US production is expected to erase much of the OPEC cuts.

The EIA projected US crude production to increase to an average of 9.2 million b/d in 2017 and 9.7 million b/d in 2018, topping the current record high of 9.6 million b/d set in 1970.

Adding to cynicism concerning the viability of the OPEC deal, brokerage firm Marex Spectron predicted Russian production and exports would rise gradually, instead of fall by 300,000 b/d by the end of April, as promised by Russian Energy Minister Alexander Novak.

Such a move would lead to “a quick deterioration of the short-term supply conditions”.

Fund managers have doubled their net long positions in Brent, WTI and options to 951 million barrels between the beginning of November and Feb. 21.