Crude oil prices were lower Tuesday, continuing their losses from the prior session on concerns that higher US oil production will negate the OPEC/non-OPEC oil producer’s output cut.
Oil futures declined on Monday, reacting to Baker Hughes’ latest rig count update, which showed the number of active rigs in the US increased for the 10th straight week. Active rigs are now at a year-high. Meanwhile, adding to the downside on Monday was the report that the US has started to sell oil from its strategic reserve. While the sale was expected, it still means new supplies will hit the market, pressuring prices.
There are concerns that the US could quickly ramp up oil production, which is relatively easy to accomplish from its shale oil reserves, which could impact the global oil supply/demand balance, and in a worst case cause OPEC members to ramp up production to defend market share.
Investors are paying close attention to both Baker Hughes data and the US’s weekly oil stockpile data. Last week, the Energy Information Administration’s stockpile update showed a large weekly decrease in oil supplies, but there was a jump in refined products, suggesting declining demand. Later today, the American Petroleum Institute will release its weekly inventory update. The more highly regarded US Energy Information Administration’s inventory data will be released on Wednesday. Analysts are expecting an increase of 1.75 million barrels in the week ended January 6.
Meanwhile, as the US production situation is unnerving traders, by all accounts it appears that the major oil producers are making good on their pledge to reduce oil output. According to Reuters, Iraq has reduced its oil production by 160,000 barrels per day since the beginning of January, in line with its allotted output cut. Last week, data showed that other major OPEC members were making good on their promises to curb output. The first official reading on whether or not major producers are following through will come mid-February when OPEC releases its January production data.