Oil Clings to Gains as Stockpiles Increases for Seventh Week

On Friday, oil prices held gains on data indicating U.S. stockpiles increase for a seventh straight week, however, at a pace that was well below expectations, and news of oil being sold out of storage in Southeast Asia.

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On Friday, oil prices held gains on data indicating U.S. stockpiles increase for a seventh straight week, however, at a pace that was well below expectations, and news  of oil being sold out of storage in Southeast Asia.

U.S. West Texas Intermediate (CLc1) was unmoved at $54.45 a barrel by 0526 GMT (12:26 a.m. ET), dragging back from early losses. West Texas Intermediate were on track for a weekly increase of approximately 2%, which would be its biggest so far this year.

Brent crude (LCOc1) increased  3 cents at $56.61 and was on track for a weekly increase of about 1.4 percent, 12:46AM ET.

U.S. crude inventories increased  by 564,000 barrels in the week to Feb. 17, up for a seventh week, even though below analysts’ expectations for a surge  of 3.5 million barrels, the Energy Information Administration (EIA) stated.

The Organization of the Petroleum Exporting Countries (OPEC) and producers, including Russia, have guaranteed to reduce output  by around 1.8 million barrels per day (bpd) to tackle a global surplus that has kept prices low since 2014.

Although OPEC seems to be sticking to its agreement, producers that were not part of the contract, mainly U.S. shale drillers, have increased production, driving the growth in inventories in the United States, the world’s biggest oil consumer.

“Current oil prices are neither sustainable for OPEC or the industry,” AB Bernstein said in a note on Friday. “As such, inventories will have to fall, which we expect will be clearer in the spring after the seasonal build.”

Indications are emerging that this is happening in Asia with traders selling oil held in tankers anchored off Malaysia, Singapore and Indonesia, according to the reports on Friday.

This month, more than 12 million barrels of oil have been taken out of storage in tankers berthed off Southeast Asian countries, shipping data in Thomson Reuters Eikon shows.

Traders have been profiting from a market feature identified as contango, where prices for later delivery are higher than those for immediate dispatch. However,  the future premium is declining and future prices may slip below spot prices, known as backwardation.

“Tightening fundamentals will push the crude market into backwardation in the coming months,” BMI Research said in a note. This “will benefit participants in the paper market but hamper the profits of oil traders who are unable to exploit the cash and carry arbitrage.”

On Additional News

On Friday, crude prices drifted weaker in Asia with U.S. rig count figures the next piece of the weekly supply and demand picture in the U.S. ahead.

On the New York Mercantile Exchange, delivery of crude futures for April eased 0.17% to $54.36 a barrel, while on London’s Intercontinental Exchange, Brent was last quoted at $56.49 a barrel.

On Friday, weekly figures from oilfield services provider Baker Hughes are due on U.S. rig activity. The previous  week, Baker Hughes stated the figure of active U.S. rigs drilling for oil increase by six , the 5th weekly surges in a row. That brought the total amount to 597, the most since November 2015.

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