Crude Posts 4th Week of Gain Amid Asian Signs of "Healthy" Price Correction

China is producing record amounts of refined oil products. File Image / Pixabay

Friday ended a remarkable week for crude with more price gains, this time on the strength of Alexander Novak, oil minister for Russia, going against the grain by declaring that the global market hasn't been balanced yet - which reportedly alleviated concerns about the Organization of the Petroleum Exporting Countries (OPEC) pulling out of its extended crude cutback deal prematurely.

But yet another day of gains caused more by sentiment rather than fundamentals has resulted in more warnings that a substantial price correction is in the offing.

Brent  rose 54 cents to $69.80 per barrel and West Texas Intermediate settled at $64.30 per barrel (signifying four straight weeks of gains) after Novak stated that although OPEC members and non-members will discuss the possibility of ending the cutbacks at an upcoming meeting, "we see that the market surplus is decreasing, but the market is not completely balanced yet."

Vagit Alekperov, chief executive of Lukoil, said Russia should exit the deal if crude prices remain at $70 per barrel for more than six months.

A common fear is that U.S. shale producers will take advantage of the high crude prices to put more rigs online, and indeed Baker Hughes reported that oil rigs rose by 10 to 752 this week, the biggest increase since June and the first time drillers added rigs in five weeks.

Robert Yawger, director of energy futures at Mizuho, conceded that "there are definitely issues supporting the market" - meaning U.S. crude production falling last week by nearly 300,000 barrels per day (bpd) to about 9.5 million bpd (due not to any restraint but to the cold snap across most of the country) - but he also noted that "If you look at any kind of momentum indicator, this is telling you this is way overbought."

The most obvious sign a correction is forthcoming came to light on Friday, with reports that China, by far Asia's biggest oil consumer, is now producing so much fuel (a record 6.17 million tonnes of refined oil products) that its refiners have turned to exports to find buyers.

Sukrit Vijayakar, director of Trifecta, said, "This drop in margins could reduce Asian refiners' demand for incremental crude in the near term and weigh on global (crude) prices."

Stephen Innes, head of trading for Asia/Pacific at Oanda, added, "A healthy (price) correction could be on the cards."

Earlier this week, Tom Kloza, founder of Oil Price Information Service, complained that this week's crude gains are "pure momentum" and that it will soon be revealed "an awful lot of money - financial money - is behind this rally."