Published: Fri, March 03, 2017
Markets | By Lucia Cruz

Crude Stocks at Record Highs, Oil Prices Pare Gains

The cartel's compliance with an agreed cut to production has been high throughout the year, with Saudi Arabia sticking to steep reductions.

OPEC's compliance with the cuts has risen to 94 percent from an original January estimate of 82 percent, according to a Reuters survey. OPEC's own report indicates their member nations had a compliance rate of 90-percent for the first month of 2017. OPEC's second-biggest producer pledged - after much opposition - to reduce its daily output by 210,000 barrels but it has not yet reached the mark.

"If January 2017 was considered a fairly "boring" month for crude oil prices, February was even worse!" the Singapore Exchange said in a note, pointing out that Brent prices traded in one of the narrowest ranges in recent memory last month -between $54 to just over $57 a barrel.

According to American petroleum Institute, US inventory increased by 2.5 million barrels in the week that ended 24 February.

But if US output continues to increase at the current rate, OPEC will eventually be forced to reassess its production cuts and start protecting its market share again.

Oil closed at the lowest level in more than three weeks as record US crude inventories were seen jeopardizing OPEC's efforts to drain a global surplus.

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The burgeoning US crude output in recent months has largely offset the ongoing production cuts by the Organization of the Petroleum Exporting Countries and Russian Federation. Earlier this month, for instance, loading data reported by Reuters revealed that exports from Basra, the largest oil export terminal in the country, were to be cut to 3.01 million bpd in March - the lowest daily since last August.

USA crude stockpiles have risen for seven straight weeks. Recent rising inventories in the USA and the talk that OPEC might be prepared to extend the production cuts beyond the initial expiry date at end-June support an assumption that the global inventory drawdown may not come as early as it was expected.

In the short-term, USA oil production and the U.S dollar could pressure oil prices.

Saudi Arabia, the world's largest crude exporter, cut pricing for April oil sales to the US and Northwest Europe and trimmed most grades for buyers in Asia and the Mediterranean.

As a resume, the OPEC deal has succeeded in already taking roughly 1 million barrels per day off of the market, but the supply/demand balance is still not as tight as OPEC members had hoped it would be at this point.

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