Crude Oil Drops Near $48

Cheryl Sanders
March 21, 2017

Crude traded in a narrow band this week, with Brent and West Texas Intermediate bouncing in a $US2.50 range as investors weighed the impact of the first oil cut from the Organization of the Petroleum Exporting Countries in eight years against rising US shale oil output and high inventories.

Data last week from oilfield services company Baker Hughes showed an increase in the number of rigs deployed in the United States for the ninth week in a row.

The price for May Futures Brent oil fell by 0,60%, reaching $51,45 per barrel on the London ICE Futures Exchange. US West Texas Intermediate (WTI) crude futures slipped 48 cents, or 0.98 per cent, to US$48.30 a barrel.

Instead of rebounding to $US53 a barrel, USA crude has remained stuck around $US49.

In the meantime, Iran has the right to boost oil output by just 90,000 bpd under the terms of the deal to curb excessive production by members of the Organization of Petroleum Exporting Countries (OPEC) and a number of major crude oil producers outside the cartel, including Russian Federation.

Oil prices settled at their lowest level in almost a week, as another rise in active US oil rigs renewed concerns over domestic production and some analysts anxious that a change to the G-20 policy statement may impact global trade.

However, other market commentators expect oil markets will tighten soon, arguing that the Opec-led cuts will only start to take effect from April.

Oil prices were also hit by information from Libya, which is exempt from the cartel's deal due to fighting in the country.

Finally, dollar-denominated crude oil prices extended their gains after the U.S. Federal Reserve raised interest rates in a highly expected move, but drove the U.S. Dollar sharply lower against a basket of currencies after the Fed's monetary policy statement and economic projections were less-hawkish than expected.

Oil prices have edged lower by more than one per cent today while a new report suggests Opec's production cuts are unlikely to bump prices above $60 a barrel this year.

Timothy Evans, analyst at Citi Futures in NY, in a note Friday, said market sentiment may further weaken in the absence of a strong rebound to the previous range.

The US oil output also increased to 9.1 million barrels per day (BPD) from 8.5 million BPD in June 2016.

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