Crude Soft Despite Reports of Strong Oil Deal Compliance

by Ship & Bunker News Team
Tuesday February 27, 2018

Yet more claims that the Organization of the Petroleum Exporting Countries (OPEC) members are achieving record compliance in production cutbacks was not enough to offset a firmer U.S. dollar and a forecast of an American inventory build - both of which caused crude prices on Tuesday to drop 1.4 percent.

West Texas Intermediate settled down 90 cents, or 1.4 percent, to $63.01, while Brent dropped 91 cents (also 1.4 percent) to $66.59.

Jim Ritterbusch, president of Ritterbusch & Associates, theorized that "We got a little extended on the upside - we had a price advance of more than $6 a barrel in crude in less than two weeks, and now I think we have some money managers taking profits ahead of the API and EIA data."

He is referring to the American Petroleum Institute's release on Wednesday of weekly figures that analysts polled by Reuters expected to show U.S. crude inventories rising 2.7 million barrels last week.

The U.S. Energy Information Administration will also release inventory data Wednesday morning, which analysts think will include a substantial upward revision of U.S. oil output in December - to the tune of "about 200,000-300,000 barrels per day above what was estimated in the weekly reports," according to Olivier Jakob, managing director at Petromatrix.

This combined with the U.S. dollar rising on Tuesday as a result of news that interest rates would continue to rise only gradually has caused all analytical attention to focus on the impending release of data - causing more reports of OPEC compliance to be completely overlooked.

Suhail Al Mazrouei, energy minister for the United Arab Emirates, told media on Tuesday in Abu Dhabi that the 24 countries currently cutting 1.8 million barrels of daily output are committed to balancing the market and that "I am optimistic that this year we will achieve market balance."

He went on to state that OPEC members and allies, including Russia, cut production below their required rates in January, thus achieving a 144 percent compliance.

He also reiterated the familiar talking point that rising demand will require "trillions of dollars" in industry investment to keep up, and that while countries such as Saudi Arabia, Kuwait, and the U.A.E. are backing projects to increase production capacity, "it's not enough that only the GCC countries are investing and continuing to invest in this important sector."

Of course, traders on Tuesday may not have reacted to Al Mazrouei's glowing summary of OPEC activity because the power of the claim has been diluted to almost nothing through repeated telling, and because so far in 2018, the reduced output numbers have been due to civil unrest, pipeline outages, oilfield maintenance, and other factors beyond the control of OPEC members.