Oil Prices Rise On Monday, But Increased U.S. Drilling Rigs And Oil Stockpiles Are Limiting Gains.
Even as crude oil prices climbed in Monday’s trading session, gains were capped as investors assessed whether an increase in US drilling rigs and inventories would offset efforts by oil producers to cut output and stabilize the market.
Last year, members of the Organization of the Petroleum Exporting Countries and non-member producers, including Russia, had agreed to slash production of nearly 1.8 million barrels per day during the first half of 2017.
Projections regarding the compliance of the producers with the agreed output cuts are standing at 90%. Reports indicate that the OPEC could lengthen the deal or even impose deeper cuts from July should globe stockpile fail to decrease enough.
US drilling rigs, inventories
Baker Hughes claimed last Friday that US energy firms added oil rigs for a fifth straight week. This move extends a nine-month recovery with producers driven by higher prices, which have traded above $50 a barrel beginning late November.
“Assuming the US oil rig count stays at the current level, we estimate US oil production would increase by 405,000 bpd between 4Q17 and 4Q16 across the Permian, Eagle Ford, Bakken and Niobrara shale plays,” Goldman Sachs stated in a research note.
The note also indicated that this year’s US output will increase by an average 130,000 bpd from 2016.
However, the growing US production helped lift crude and gasoline stockpiles to hit record highs in the previous week, amid waning demand growth for the motor fuel.
Crude oil analysis
Brent oil futures for April delivery were up 43 cents at $56.24 a barrel at 10:36 GMT, while US crude oil for the April contract climbed 36 cents or 0.63% at $54.12. Earlier, both contracts dipped in quiet trading.
Moving indicators imply a bullish tone for crude oil futures. Beginning January 11, crude oil has sustained a healthy trend that ranged from 50.69 to 54.33. Resistance level can be found at 55.25 and support at 50.72. The surges can be attributed to the efforts and agreement among the oil producers to cut output and a weaker dollar.
Jeffrey Halley, a senior market analyst at Singapore-based futures brokerage OANDA, stated that “Sustained gains above $55 a barrel, and a hoped for rally to $60 a barrel, (are) both proving incredibly tough nuts to crack.”
“At the crux of the matter is that 90% OPEC compliance is being balanced by ever increasing U.S. shale production,” he added.
According to data from the US Commodity Futures Trading Commission (CFTC) published last week, hedge funds and other money managers raised their net long US crude futures and options positions in the week to February 14 to an all-time high. Analysts said that the rise in long positions leaves the market susceptible to a downward correction.
In other news, Monday’s economic calendar is relatively light as the US market will be closed today for the President's Day holiday. Focus will be on the Eurogroup meeting today. The UK will also post CBI industrial order forecasts and the Bundesbank will publish its monthly report. Eurozone consumer confidence report is also due later in the session.