Continued OPEC Rhetoric Unable to Positively Impact an Oil Market Pummeled by Rising US Production

One analyst suggests market speculators are setting themselves up for a massive disappointment.

Monday's oil market could be described as business as usual, with no amount of Organization of the Petroleum Exporting Countries (OPEC) rhetoric able to lift crude significantly above the gains initially made during the unveiling of the cartel's oil reduction cutback agreement.

West Texas Intermediate settled up 6 cents at $54.05, and Brent fell 4 cents to $55.95 per barrel, with traders indicating that gains were compromised by a report from Genscape showing a build of over 800,000 barrels of crude at the Cushing storage hub in Oklahoma.

Another troubling factor to come to light Monday was money managers raising their bullish crude futures and options positions in the week to February 21 to the highest on record, to 951,312 lots, the equivalent of nearly 1 billion barrels of oil; this prompted Stephen Brennock, analyst for PVM, to state, "With speculators increasing their bullish bets on U.S. crude to an all-time high, the risk of disappointment and subsequent downward spiral in prices has never been greater."

Meanwhile, Baker Hughes reports that drillers added five oil rigs in the week to Feb. 24, bringing the total count up to 602, the most rigs since October 2015 - and a far cry from the 400 rigs that were active during the same week a year ago.

Moreover, Citi Research in a note this week conceded that U.S. producers have signaled higher capital spending and further production growth -  perhaps exceeding what many analysts expect, and that "the global crude stock draws expected would be partially offset by the outperformance of U.S. production, which might upset calculations of core OPEC countries in lifting prices."

Presumably none of this was enough to dissuade Mohammed Barkindo, secretary-general for OPEC, from stating on Monday that his cartel remains optimistic that the "worst was over" for the oil market: "We remain optimistic that the worst is over for this cycle; now the challenge is how to solidify the platform of 24 (countries)," referring to 13 OPEC and 11 non-OPEC members.

Barkindo reiterated an earlier message that "the commitment from all ministers, all participating countries, is very strong" with regards to cutting back production.

Barkindo's enthusiasm is matched by that of Bijan Zanganeh, oil minister for Iran, which is exempt from the cutbacks: he said, "OPEC members' level of compliance to cut oil production in January has been acceptable and we predict more cooperation from the non-OPEC members in near future."

Iran's level of production has reached 3.9 million barrels per day (bpd) in February, while OPEC is on track to cut output by 1.2 million bpd to 32.5 million bpd for the first six months of 2017.

Aside from the major problem of OPEC members exempt from the cutbacks, the fundamental problem that is keeping the oil market in the doldrums was illustrated last week by Jim Burkhard, head of global oil markets research with IHS Energy; he remarked that while OPEC has been successful at boosting market psychology and confidence that their cuts will impact the supply glut, "With every OPEC action, there is a reaction; it may take time, but in the months ahead the reaction will be growth in U.S. oil production."