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Oil Ends Down as Record U.S. Output Offsets Jumpstart in OPEC Cuts

CommoditiesJan 17, 2019 15:07
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Investing.com - The trend is not always your friend. Oil bulls are beginning to discover that.

Crude prices may be up nearly 14% year to date, with the path of least resistance often appearing to be higher than lower. Yet day-to-day volatility is frustrating those eager to see an uninterrupted move in prices, just like the one enjoyed by oil bears through most of the last quarter.

With OPEC's monthly report on Thursday reaffirming sharper-than-expected Saudi production cuts ahead of schedule, the market was still down more than 1%.

WTI settled down 24 cents, or 0.45, at $52.07 per barrel.

Brent, the global oil benchmark, slid by 34 cents, or 0.8%, to trade at $60.70 by 2:30 PM ET (19:30 GMT).

Analysts attributed the slide to belated reaction over U.S. government data from the previous day showing domestic production almost near the long-forecast record of 12 million barrels per day that oil bulls thought would come later in the year.

“Oil is stuck in the mud of politics and conflicting signals about supply and demand,” said Phil Flynn, energy analyst at The Price Futures Group in Chicago and a self-professed oil bull. “The market is having a hard time getting anything going lately as bearish and bullish forces are keeping prices locked in a range.”

Crude got off to a powerful start for 2019 after OPEC cuts and Saudi whispers for $80 oil led to an impressive 25% gain within the first two weeks from the 18-month lows of $42.36 hit by WTI on Christmas Eve. While many thought that momentum would continue to help WTI reach $60 and recoup the 40% selloff the market saw in the fourth quarter, the gains eroded as new concerns emerged about an economic slowdown in China - the world's top oil importer.

OPEC's monthly report on Thursday showed it jump-started the Dec. 7 agreement it reached with Russia to cut 1.2 million bpd in supply from the beginning of this year.

Not waiting for January, the cartel slashed 751,000 bpd by December itself to bring its output down to 31.6 million bpd. The Saudis contributed the lion's share of those cuts, with a 486,000-bpd reduction that took their own production down a little more than 10.5 million in December.

Despite that, prices couldn't rally on Thursday as the market's attention was on ramping U.S. crude production.

The Washington-based Energy Information Administration said on Wednesday that U.S. crude output grew by 200,000 barrels from a week earlier to reach a record high of 11.9 million bpd last week. In a separate report on Tuesday, the EIA said U.S. production could possibly hit 13 million bpd by 2020.

The EIA also reported on Wednesday outsize builds in U.S. gasoline inventories and distillate stockpiles that offset a weekly drop in crude in storage .

Scott Shelton, energy broker and analyst with ICAP (LON:NXGN) in Durham, N.C., said the mixed EIA inventory report aside, falling refining margins were also weighing on the market.

"While OPEC can cut 751,000 bpd in December according to the monthly report, they cannot control margins, and I think that is the issue here more than anything, as it’s hard to be optimistic about oil prices when margins are weak," Shelton said. "Bottom line, my view is about as range bound as the market is."

Flynn agreed, saying with the U.S. government shutdown and the trade war with China unresolved, "half of the oil trade is either looking at the barrel as half empty while others are looking at it as half full".

Oil Ends Down as Record U.S. Output Offsets Jumpstart in OPEC Cuts
 

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