Oil retreats after failing to hit $70 a barrel

Javier Stokes
March 24, 2018

Oil prices were firm on Thursday, buoyed by a surprise decline in United States crude inventories as well as ongoing supply cuts led by Opec, although a relentless rise in U.S. oil output threatens to undermine efforts to tighten the market.

Brent crude futures LCOc1 jumped $1.54, or 2.2 percent, to settle at $70.45 a barrel.

US West Texas Intermediate crude futures were at $65.20 a barrel, early on Thursday, up 3 cents from their previous settlement.

"Spot Brent crude oil prices averaged $3.36 per barrel more than WTI prices in 2017 compared with just $0.40 per barrel more in 2016, providing a price incentive to export USA crude oil into the global market", said Matt Stanley, a fuel broker at Freight Investor Services worldwide in a note.

On the other hand, Reuters energy markets analyst Amanda Cooper tweeted that the physical oil market was weak, even taking into account seasonal peculiarities.

But the confident mood in the oil market has been tempered by USA crude production, 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.

Worries about Venezuela's tumbling crude production also supported oil markets.

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Oil prices kept rising on Wednesday as official data showed an unexpected drop in the USA crude stockpiles.

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. OPEC and its allies have concluded they will eradicate the oil surplus by September even as investors continue to weigh those comments against surging US crude production. Total volume traded was about 23% below the 100-day average.

Brent crude futures were at $66.26 a barrel, up 21c, or 0.3%.

Stimulated by yesterday's surprise crude stockpiles decline estimated by API, at 2.74 million barrels, WTI today traded at US$64.24 at the time of writing, with Brent crude at US$67.97 a barrel.

America's gasoline inventories also tumbled for a third week to the lowest level since late January, while distillate stockpiles contracted for a sixth straight week to the lowest since December, according to the EIA.

Gasoline stocks fell by 1.7 million barrels, compared with analysts' expectations in a Reuters poll for a 2.0 million barrels drop. One of the options is looking at the past seven years of inventories in OECD countries, instead of five years. The decline comes as OPEC saw record compliance with production-cut targets in February as the group continues efforts to drain a global glut.

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