Oil prices dip on US crude output growth, OPEC deal impact wanes

oil prices
Oil prices fell on Wednesday despite rising demand from Chinese factories.  Investors remain concerned about the rising supply of crude from the US and other producing nations.  Anadarko photo.

Oil prices fell on Wednesday despite rising demand from Chinese factories.  Investors remain concerned about the rising supply of crude from the US and other producing nations.  Anadarko photo.

Oil prices down by pennies

Oil prices dipped slightly on Wednesday after data showed strong factory activity in China, however, investors remained cautious about rising US production.

By 1:29 p.m. EDT, benchmark Brent crude futures were down 7 cents to $64.57/barrel and US WTI was even at $60.71/barrel.  The Canadian Crude Index fell 11 cents to $39.41.

So far this week, oil prices are down 1 per cent as investors remain concerned about OPEC’s ability to counter rapid growth in US crude production.

In OPEC’s monthly report, the cartel said it expects crude supply from non-members to grow more quickly than had previously been expected. The Energy Information Administration expects US crude production to hit 11 million barrels per day (b/d) by the end of the year.

According to OPEC, in January, the first increase in crude inventories across the world’s most industrialized nations in eight months was noted.  This is a sign that OPEC’s efforts to cut the global crude glut are being undermined by rising production in the US and other countries.

“The OPEC report seems to illustrate that the speed of the market rebalancing is slowing,” Commerzbank strategist Carsten Fritsch told Reuters.

“(It suggests) the rebalancing can’t go much further from here and according to the OPEC report, demand for OPEC’S oil must be 33 million barrels per day for the rest of the year to get rid of any remaining oversupply.”

For 2018, OPEC cut back its forecast for demand for the cartel’s crude by 250,000 b/d to 32.61 million b/d.  This is OPEC’s fourth consecutive demand forecast decline reported by the cartel.

Early on in the session, oil prices rose slightly after data showed Chinese industrial production grew more than expected during the first two months of the year.

Oliver Nugent, ING commodities strategist said the growing Chinese industrial output is “reinforcing that bullish narrative” across the commodities market, including oil.

However, rising US output and seasonally low demand are behind increasing US crude inventories.  Data from the American Petroleum Institute released on Tuesday shows US crude stocks are up by 1.2 million barrels to 428 million barrels in the week ending March 9.

The US EIA will release its crude stock data later on Wednesday.

According to Reuters, seasonal demand patterns for crude and refined products could mean the oil market may only be weeks away from a run of declines.

“We are now only two to four weeks away from when weekly oil inventory data will start to draw again which should be supportive for oil prices,” SEB commodities strategist Bjarne Schieldrop told Reuters.

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