By Barani Krishnan and Liz Moyer
Investing.com — Oil prices fell more than 2% Wednesday to close down for the day and March as traders moved cautiously ahead of a decision on production quotas by OPEC+.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled down $1.39, or 2.3%, at $59.16 per barrel.
London-traded Brent, the global benchmark for crude, closed down $1.40, or 2.2%, at $63.53.
For the month, WTI and Brent lost almost 4% while for the quarter, they rose about 22%.
Oil prices fell on the day despite the Energy Information Administration reporting a drop of 876,000 barrels for crude stockpiles last week, compared with analysts' expectations for a build of 107,000 barrels.
The EIA said gasoline inventories also declined by 1.735 million barrels last week, compared with expectations for a 730,000-barrel build.
U.S. crude exports, meanwhile, climbed above the 3-million-barrel per day mark after being stagnant at around 2.5 million barrels for weeks.
The EIA report aside, there was also general optimism across markets for President Joe Biden’s proposed $2 trillion U.S. infrastructure plan, the details of which were scheduled to be announced later on Wednesday.
Still, traders exercised caution ahead of the outcome of a two-day meeting of OPEC+ on production quotas for May.
Since April last year, the 23-nation OPEC+ — made up of the 13-member Saudi-led OPEC, or Organization of the Petroleum Exporting Countries, and 10 non-OPEC nations steered by Russia — has withheld at least 7.0 million barrels per day of supply from the market.
Those cuts helped WTI rise from a little under $36 per barrel on Oct. 30 to just below $68 by March 8. Brent went from beneath $38 to just above $71 in that same stretch. But over the past fortnight, the two benchmarks have lost about 10% from those highs.
The most critical component of the OPEC+ cuts has been the Saudi portion — which has accounted for anywhere between one and two million barrels per day since April.
In January, when oil bears were betting on the alliance to hike production amid strengthening signs of demand recovery, the Saudis doubled down with an additional one million-barrel cut for February and March, sending crude prices soaring. Saudi Oil Minister Abdulzaziz bin Salman had boasted then that he would make life "hell" for short-sellers in oil.
When OPEC+ met again earlier this month to decide on April production levels, the Saudis again announced a one million-barrel cut for next month instead of a production hike. The difference, though, was the tone of Oil Minister Abdulaziz, who seemed genuinely concerned about demand.
Ahead of Thursday’s decision on May production, traders are betting the Saudis will try to clamp down output again by citing Europe’s renewed wave of Covid-19 infections and lockdowns that have made the region one of the world’s most vulnerable toward the virus.
“The broad expectation is that OPEC will keep production cuts in place, especially after the whipsaw action in oil prices over the past week,” said Sophie Griffiths, analyst at online broker OANDA.
But “with Covid cases rising steeply and lockdowns tightening in Europe as well as key developing markets such as India and Brazil, the demand outlook for oil has clouded significantly. This is overshadowing the more upbeat trajectory from the U.S.,” she added.
Swings of more than 2% a day at times in WTI and Brent over the past week have also made the oil market “extremely vulnerable”, Griffiths noted. That compares with the nearly one-way trade of the previous four months that took crude prices up 90% from end-October lows.
Even the EIA report released Wednesday had some numbers that could be worrying for traders long on oil.
Distillate stockpiles, which include diesel and heating oil, rose 2.54 million barrels in the week against expectations for a build of 171,000 barrels, the EIA data showed.
And U.S. oil production was estimated at 11.1 million barrels daily — above the 11-million mark the first time in weeks — suggesting that drillers were responding positively to WTI at above $60 per barrel.
The rise in crude production and prices has been in tandem with the increase in the U.S. oil rig count as drillers put more rigs to work to extract additional supply from the ground.
As of last Friday, the rig count, which is a measure for future production, stood at 324. That was up 180, or 73%, from an August record low of 244.