Published: Sat, March 24, 2018
Money | By Wilma Wheeler

Oil holds above $65 with USA inventories below 5-year average

Oil holds above $65 with USA inventories below 5-year average

But the confident mood in the oil market has been tempered by USA crude production C-OUT-T-EIA, which climbed to a record 10.4 million barrels per day last week, putting US output ahead of Saudi Arabia and closing in on Russia's 11 million bpd.

As Reuters writes in an article "Oil prices fall as increased U.S. drilling activity points to higher output", U.S. West Texas Intermediate (WTI) crude futures were at $62.02 a barrel at 0145 GMT, down 32 cents, or 0.5 percent, from their previous close.

"Despite all the bearish USA shale supply headlines, oil prices remain firm as. the odds that the US will pull out of the Iran nuclear agreement continue to run very high", said Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore.

Analysts also pointed to the nomination of Mike Pompeo as new US Secretary of State as a risk to oil markets, given he fiercely opposed the 2015 pact as a member of Congress. Gasoline production averaged 9.9 million barrels in the week to March 16, with refineries operating at 91.7 percent of capacity and processing 16.8 million barrels of crude daily.

Diminished output from Venezuela and Middle East tensions are also driving oil prices higher.

Further supporting oil prices has been supply restraint led by the Organization of the Petroleum Exporting Countries (Opec) and Russian Federation, which started in 2017 and is scheduled to go on for the rest of 2018.

Also looming over oil markets has been surging United States crude oil production, which has risen by more than 20% since mid-2016, to 10.38-million barrels a day, pushing it past top exporter Saudi Arabia.

USA production growth has partly been countered by the deal to cut output by the Organization of the Petroleum Exporting Countries, Russia and their allies. Total volume traded was about 23% below the 100-day average. The global benchmark traded at a $4.22 premium to WTI.

In a sign of healthy demand, USA crude stocks fell by 2.7 million barrels in the week ended March 16 to 425.3 million, the American Petroleum Institute said on Tuesday. The decline comes as OPEC saw record compliance with production-cut targets in February as the group continues efforts to drain a global glut.

Still, whether the decline in American inventories can reassure OPEC is uncertain. One of the options is looking at the past seven years of inventories in OECD countries, instead of five years.

Gasoline stocks fell by 1.7 million barrels, while distillate stockpiles, which include diesel and heating oil, fell by 2.0 million barrels, said the EIA.

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