Oil mixed after 10th straight drop in US crude stocks

PSAC lowers drilling forecast for 2018 ConocoPhillips photo.

Oil prices were mixed in trading on Wednesday, despite a decline in US crude stocks and a drop in the value of the US dollar. ConocoPhillips photo.

WTI oil prices rise to highest level since Dec 2014 during session

Oil prices rose on Wednesday on a weaker US dollar as well as US Energy Information Administration data that showed a decline in US crude stocks.

By 12:47 p.m. EST, benchmark Brent had fallen 15 cents to $69.39/barrel after rising to $70.26/barrel earlier in the session.  US WTI was up 35 cents to $64.82/barrel, after falling from a session high of $65.28, the highest since December 2014.

The Canadian Crude Index rose to $38.39.

Overall crude inventories fell by 1.1 million barrels, less than anticipated, but the 10-week stretch of declines is a record, according to EIA data going back to 1982.

US crude stocks declined to 411.6 million barrels, the lowest level since February 2015.  EIA data also showed that US production is on the rise again at 9.9 million barrels per day (b/d), is nearing the record high of 10.04 million b/d reached in 1970.

Despite gasoline and diesel demand exceeding levels from last year, refining capacity us fell by 2.1 per cent as maintenance season got underway, leaving some analysts concerned that rising US production and dropping refining activity will result in higher crude stocks.

“It is only a matter of weeks until lower crude oil processing and rising domestic production lead to crude stock builds,” Carsten Fritsch, oil analyst at Commerzbank AG told Reuters.

Money managers now hold more bullish positions in crude futures and options than at any time on record, according to Reuters.  They have bought in because of declining global crude inventories due to the OPEC supply cut agreement.

“The market has rallied by 50 per cent and a lot of investors have been involved for a long time,” Saxo Bank senior manager Ole Hansen told Reuters.

But, some investors are now looking for protection against a possible fall in prices.  Trading data shows open interest for Brent crude put options for selling at $70, $69 and $68/barrel has risen since last week.

Rising sell options are due to large long positions amassed in recent months, Sukrit Vijayakar of Trifecta told Reuters.

“We still have … nine long barrels for every short barrel, so a reversal should be interesting to watch,” he said.

But, traders do not believe oil prices are likely to fall significantly because strong global economic growth will boost oil demand and OPEC is holding firm to its pledge to reduce production.

The US dollar fell by 0.7 per cent after comments by US Treasury Secretary Steven Mnuchin said a weaker currency was positive for US trade.






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