- Investors continue to weigh fall in OPEC production versus approaching surge in U.S. shale output
Oil futures wavered between gains and losses Friday, with investors continuing to weigh a fall in production from the Organization of the Petroleum Exporting Countries and an anticipated increase in demand for crude on one side, and an approaching surge in U.S. shale output on the other.
U.S. crude futures recently traded up 5 cents, or 0.08%, to $61.24 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, edged down 6 cents, or 0.09%, to $65.06 a barrel on ICE Futures Europe.
The International Energy Agency bolstered crude on Thursday with data showing that supply from OPEC flagged in February on a drop in production from Venezuela.
The agency also forecast an increase in global oil demand, sufficient to soak up any surplus crude in the market. Military confrontations in Syria also raised expectations of further outages in the Middle East.
“The sentiment is still very bullish,” said Eugen Weinberg, head of commodities research at Commerzbank. “But actually I think the environment is quite bad. It’s not only the rising production in the U.S. but also the fact that Saudi Aramco is not going to be listed this year.”
Analysts at Bank of America Merill Lynch said Friday that investors who have amassed massive bullish positions on crude prices may be ignoring some big risks, including ramped up hedging by North American producers, a possibly messy unwinding of OPEC’s production cut agreement, and the growing risk of a trade war. In addition, the price of crude for April delivery slipped below the price for May delivery this week, which could signal a return to bearish price conditions that allow oil to build up in storage.
“With spec shorts already at a 15 year low, the positioning risk to the oil market is that some of the bears wake up from winter hibernation,” the analysts said. “If they do, WTI crude oil prices could lose $5/bbl within just a few weeks.”
Earlier in the week, OPEC said it expects U.S. shale production to rise by 130,000 barrels a day this year.
OPEC and 10 producers outside the oil cartel, including Russia, have been holding back crude output by 1.8 million barrels a day since the start of last year, part of an effort to rein a supply glut and prop up prices.
Saudi Arabia’s planned initial public offering of its national oil company, tentatively scheduled for 2018, has been the driving force behind OPEC’s attempt to rebalance the market, analysts said. The kingdom wants to bolster crude prices to coincide with a successful listing of the company.
Now investors fear Saudi Arabia’s commitment to the cuts might soften because of the postponement of the listing until 2019, and will be closely watching OPEC’s next move on the production cuts at its next meeting in June.
Market participants will be watching for the rig-count data from Baker Hughes Inc. later on Friday. The firm’s weekly data on the number of rigs drilling for oil in the U.S. is seen as a bellwether for activity in the sector.
Gasoline futures recently fell 0.49%, to $1.9154 a gallon. Diesel futures edged down 0.3%, to $1.8872 a gallon.
Source: WSJ
