Fundamentals :
Oil prices dipped on Wednesday at 47.80 low as rising crude stocks in the United States underscored an ongoing global fuel supply overhang despite an OPEC-led effort to cut output. U.S. crude oil inventories surged by 4.5 million barrels in the week to March 17 to 533.6 million barrels, the American Petroleum Institute (API) said late on Tuesday.
"The American Petroleum Institutes' crude inventories stuck the knife into crude overnight, coming in at a 4.5 million barrel increase against an expected increase of 2.8 million barrels," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.
"If the API stuck the knife in, tonight's EIA Crude Inventory figures may twist it. A blowout above the 2.1 million barrel increase expected, may well torpedo oil below the waterline," he added.
New production projects and a fresh shale boom could boost oil output by a million barrels per year and result in an oversupply in the next couple of years, according to Goldman Sachs (NYSE:GS).
OPEC's landmark decision to limit output for the first time in eight years in a bid to arrest the existing supply glut reduced price volatility and increased stability, unintentionally helping the shale producers, the bank said.
"OPEC's decision in November 2016 to cut production was rational, in our view, and fit into its role of inventory manager of last resort," Goldman said.
"However, the unintended consequence was to underwrite shale activity through a bullish credit market at a time when delayed delivery of the 2011-13 capex boom could lead to record non-OPEC production growth in 2018."
The Organization of the Petroleum Exporting Countries (OPEC) agreed to curb its output by about 1.2 million barrels per day (bpd) from Jan. 1 this year. Russia and 10 other non-OPEC producers agreed to jointly cut by an additional 600,000 bpd.
Sources within the Organization of the Petroleum Exporting Countries have indicated that its members increasingly favor extended production cuts but want the backing of non-OPEC oil producers, such as Russia, which have yet to deliver fully on existing reductions. (CNBC )
PEC compliance in Feb 2017 was estimated over 94% which helped oil boosters to sustain levels above $52 bp on average but the war continues between the US and OPEC counties with opposed interests.
Russia has reduced oil production through first 2017 quarter by 200000 bpd and promised to increase further reductions to 300000 bdp by end of April or May with OPEC plan being in accord. According to sources to CNBC, OPEC is on the edge of striking a powerful strike where the cartel is considering extending initial Vienna deal till end of 2017 if OPEC and Non-OPEC counties agree to further oil reduction to curb market demand, but details about quotas were not specified. Markets, although OPEC next move is currently cooked in a low steam, are looking forward for such deal in which, in case established or achieved, should energize oil bullish levels back to Feb 2017 prices.
Conclusion : Currently US has the upper with increase shale drilling and inventories storage. The rift continues and the war tone is ascending between US and OPEC, each trying to drive oil levels higher and lower depending on their economic interests. Keep an eye on OPEC next chess move which will set oil course for the coming weeks. Look forward for US crude inventories today set for a release at 2:30 PM GMT.
Technical Overview
The market currently bearish due to the above mentioned data, but OPEC keep an eye on OPEC coming moves. If OPEC managed to struck the deal with extension till end of 2017, crude levels will sustain the $50>$52 levels. In absence of news from Organization of the Petroleum Exporting Countries, markets should expect further declines with $47<$46 as targets.
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