Oil prices mixed despite large draw in US crude stocks

Oil prices were mixed in trading on Thursday after the US EIA reported a significant drawdown in US crude stocks. Encana photo.

Oil prices recover after slipping below $69/barrel Thursday

Oil prices rebounded after slipping below $69/barrel on Thursday, but remained pennies short of the previous session despite a significant drawdown of US crude stocks.

By 12:34 p.m. EST, Benchmark Brent was down 7 cents to $69.31/barrel, after dipping to $68.80/barrel earlier in the session.  US WTI rose 6 cents to $64.03/barrel.

The Canadian Crude Index slipped to $40.26.

According to the US Energy Information Administration, US crude stocks fell by 6.9 million barrels last week.  Analysts surveyed had anticipated a draw of 3.5 million barrels.  At the Cushing, Oklahoma delivery hub for US crude futures, crude inventories fell by 4.2 million barrels last week, the largest draw since at least 2004.

The EIA reports US crude production recovered to 9.75 million barrels per day (b/d), after falling the previous week because of cold weather.

OPEC released its monthly report on Thursday which raised the cartel’s forecast for crude supply for non-OPEC members in 2018.

“Higher oil prices are bringing more supply to the market, particularly in North America and specifically tight oil,” OPEC said in the report.

Some analysts are concerned that the recent oil rally that saw Brent prices rise from $61/barrel in early December will soon lose steam.

“The upside is now limited for oil prices,” Fawad Razaqzada, market analyst at brokerage Forex.com told Reuters. “U.S. oil producers will ramp up production in the coming months.”

The EIA forecasts that US oil production will rise again in February.  Shale output is expected to increase by 111,000 b/d.  In recent reports, the EIA predicted US output could reach 10 million b/d next month and 11 million b/d in 2019.

Despite the expected rise in US output, a number of traders say oil prices are not likely to fall significantly due to the OPEC supply cut agreement and risks of further disruptions.

Niger Delta Avengers, a militant group in Nigeria, is threatening to attack the African country’s oil sector in the coming days.  Such an attack could hamper crude supplies from the continent’s largest crude exporting nation.

“The impact of such a threat, if carried out, would be significant on the global supply and demand balance,” said Tamas Varga of oil broker PVM told Reuters. “The market is still sensitive to geopolitical developments.”