Oil prices cracked sharply last week, as optimism about markets achieving balance faded amid stubbornly high US inventories and rising US output. US oil inventories have increased by 50 million barrels so far this year, and are at a record high.
While Opec compliance to output cuts is nearing 100 per cent, relative non-compliance of non-Opec coupled with steadily climbing US production is making the long side wary. US rig count has been increasing for eight consecutive weeks and latest forecasts show that US shale output will continue to inch higher in April.
Given the extent of long positions in the market, it was natural that some of those positions got liquidated in the absence of positive triggers. The Opec and IEA monthly reports are due this week and will provide further clarity on market fundamentals. In the meantime, the technical picture still looks weak and further downside cannot be ruled out.
WTI prices fell below the psychological $50 mark for the first time since December as the optimism built up post the Opec deal started to fade. Opec producers have implemented nearly 98 per cent of the agreed cuts as per latest data. Estimates show that supply from the 11 Opec members with production targets fell to 29.88 million bpd last month. Production by all Opec members, including cut-exempted Nigeria and Libya, fell to 32.14 million bpd.
Saudi Arabia, which raised oil production to a record this year took a bigger burden of the cut and has reduced output by more than 700,000 bpd to 9.74 million bpd. Iraq’s compliance still hasn’t come fully but more output cuts are likely in the coming weeks. Read More…