Oil Futures Remain Under Pressure, Concerns Over Rising US Output

There was significant selling pressure on oil futures during Tuesday with an unwinding of bullish positions due to supply concerns and overall confidence remained fragile ahead of the EIA data.

Oil futures came under significant selling pressure during US trading on Tuesday with a retreat below $52.0 p/b important in triggering initial selling and there were sustained losses to lows below $51.00. On a closing basis, prices weakened to the lowest level for six weeks.

There was a further unwinding of long, speculative positions, which hurt prices amid underlying uncertainty surrounding market fundamentals. Although there were doubts surrounding OPEC’s compliance with planned production cuts, the potential for rising US production is liable to have had a bigger impact in undermining confidence.

In its latest report, the Energy Information Administration (EIA) forecast that US production would increase to 9.0mn bpd in 2017 from 8.89mn in 2016, increasing concerns over higher US output. There was also evidence of rising shipments from the North Sea and Azerbaijan to Asia, which dampened sentiment.

The American Petroleum Institute (API) inventories report recorded a slightly larger than expected build of 1.5mn barrels in the latest week and there was also a further increase in fuel inventories, notably for distillates, which had some negative impact on sentiment, particularly given some concerns that fuel demand in the US could be weakening slightly.

WTI futures were able to resist further selling pressure after the sharp decline during New York trading and consolidated just below the $51.00 p/b during Wednesday’s Asian session.

Saudi Arabia announced that it would reduce supplies to Asia slightly in February, which had some positive impact on prices.

There was, however, selling interest around $51.25 and February WTI futures dipped to just below $51.00 at the US open with March Brent futures trading just below $54.00 p/b.

Dollar trends will be monitored closely on Wednesday with Trump’s press conference also potentially significant amid rising volatility.

The EIA inventories release will also have a significant impact with markets expecting a small build in the latest week. The data on fuel inventories will be important after the surge seen in last week’s data and US production levels will also have a significant market impact.

Oil Futures 4-Hour Chart

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Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.