Published: Mon, February 27, 2017
Economy | By Melissa Porter

Zanganeh: OPEC Determined to Manage Crude Oil Market

Zanganeh: OPEC Determined to Manage Crude Oil Market

West Texas Intermediate futures (the domestic benchmark) are trading below the worldwide Brent standard by $2 per barrel or more, and are now cheaper than some Middle Eastern grades of lesser quality.

The EIA (U.S. Energy Information Administration) reported that USA crude oil inventories rose by 0.6 MMbbls (million barrels) to 518.7 MMbbls between February 10 and February 17, 2017. Oil's resilience in the face of a sustained rise in US inventories reflects expectations for future global economic growth and crude demand as well as relatively high compliance by members of the Organization of the Petroleum Exporting Countries with output reductions, he said. The small inventory build in crude oil was offset by a large total petroleum draw.

Brent crude was up 3 cents at $56.61 and was on track for a weekly gain of about 1.4 percent.

The January to June 2017 contango in the forward curve was nearly $3 per barrel, compared to a June premium of under half a dollar now.

Crude oil prices moved lower on Friday, and remains range bound, unable to break out despite continued compliance from OPEC.

Oil traded near the highest level since July 2015 as a drop in USA crude imports signaled that OPEC's output cuts are taking effect.

A group of 20 oil producers, including members of the Organization of the Petroleum Exporting Countries, have reduced their production in the past month in line with a landmark output cut agreement signed previous year.

However, exports from the United States, which is not part of the deal, hit a record high of 1.2 million barrels per day (bpd) last week and production rose to above 9 million bpd, the highest since April, the U.S. Energy Administration Agency said.

OPEC Secretary-General Mohammad Barkindo said this week that January data showed conformity from participating OPEC nations with output curbs had been above 90% and oil inventories would decline further this year.

It remains to be seen how much longer the members will remain compliant under the looming threat of US oil.

"OPEC's strategy is targeting inventories - given the scale of the overhang, the market won't rebalance in six months - we expect an extension into (the second half of 2017)", said Energy Aspects analyst Virendra Chauhan.

While prices extended gains by more than 2 percent soon after the inventory data was released, much of those advances dissipated over the next 30 minutes.

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