Crude Prices Flat as OPEC, Russia Mull 20-Year Oil Cooperation

Saudi Arabia says both parties agree to the alliance and just have to hammer out the details. File Image / Pixabay

A disclosure on Tuesday from the American Petroleum Institute of a larger than expected rise in U.S. oil inventories was sufficient to cause another flat day for crude trading, with West Texas Intermediate dropping 30 cents to settle at $65.25 per barrel and Brent falling 1 cent to $70.11.

The API's findings - that crude inventories rose by 5.3 million barrels in the week ended March 23 to 430.6 million (they had been predicted to fall by 287,000 barrels) - seem to test the growing analytical thought that inventories overall are rapidly depleting due to strong international demand and that lack of exploration and drilling investment will cause problems over the longer term.

Another impact was cited by Phillip Streible, senior market strategist at RJO Futures: he said, "The dollar index is poking up there and that's probably weighing a little bit on prices," referring to the dollar .DXY rebounding from a five-week low, making dollar-denominated commodities more expensive for holders of other currencies.

Nonetheless, both contracts remain strong in 2018: Brent has risen by over 5 percent in March and WTI is up over 4 percent, both being on track for a third consecutive quarterly gain - which last happened in 2010.

Presumably as much to extend this market strength as much as possible as well as to affect a complete global market rebalance, Mohammed bin Salman, crown prince for Saudi Arabia, told Reuters that the Organization of the Petroleum Exporting Countries (OPEC) and Russia are considering a long-term extension of their alliance on oil curbs that began in January 2017.

He said, "We are working to shift from a year-to-year agreement to a 10-20 year agreement; we have agreement on the big picture, but not yet on the detail."

In theory, a formal announcement of such an extension would boost crude prices, which is critical for the Saudis to maximize the value of their initial public offering of Saudi Aramco, which the crown prince said could take place at the end of 2018 or early 2019, depending on market conditions.

But if one thing defines market trading in 2018, it's a relative lack of interest for any public statement  made by OPEC, at least not enough to propel prices to significant heights; moreover, many analysts concerned with fundamentals and not sentiment argue that the market's current strength may not last.

This was made clear by Barclays, which in January reminded everyone that the U.S. breaking through the 10 million barrel per day production mark is not to be taken lightly: it wrote, "We think U.S. tight  oil production growth warrants close monitoring as it could spoil OPEC's market-balancing efforts, pushing the market into surplus in 2018."