Oil prices jittery as investors continue to fret about global supply

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11 January, 2017

Oil fell 2% on January 9 as signs of growing USA production outweighed optimism that many other producers, including Russian Federation, were sticking to a deal to cut supplies in a bid to bolster the market. Brent crude gained 21 cents, or 0.37%, to US$57.10 a barrel, and United States crude was up 23 cents, or 0.43%, at US$53.99.

In the United States, energy companies last week added rigs for a tenth week in a row, extending the drilling recovery into an eighth month as crude prices remained at levels at which many U.S. drillers can operate profitably.

Sources also told Reuters on January 9 that Iraq's State Oil Marketing Co.

Supply-side strains pulled down oil prices previous year and additional USA pressure may come with the sale of around 8 million barrels from the Strategic Petroleum Reserve in the coming months.

Iran's oil exports, which reached close to 3 million barrels per day in 2011, fell to a little more than 1 million bpd after tougher sanctions were imposed in 2012 targeting its nuclear program. Increased production from exporters such as Libya, which are not part of the group that has agreed to cuts, is also weighing on the prospect of a real and sustained decline in inventories over 2017.

U.S. drillers boosted the rig count by four to 529 last week, according to data on Friday from Baker Hughes.

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Iraq's record oil output also weighs on the oil price.

Iraqi crude exports from southern ports averaged a record 3.51 million b/d in December, according to the country's oil ministry. "And we definitely do not expect the Kurds to join in, given that they are autonomous from the federal government", Energy Aspects said in its 2017 oil market outlook, published this week.

In the past three months, Tehran has sold nearly half the oil it had held in floating storage, which had tied up many of its tankers as it struggled to offload stocks in an oversupplied global market. That suggests two things, both of which are bearish for oil: there is not a lot of money left to go long, lowering the chances of further prices gains; and the potential for a correction in prices is very high at this point.

On Friday, a Kuwaiti oil official said that country had also reduced production in line with the deal, and there are also reports of supply cuts from Abu Dhabi.

Oil has rallied 23 percent since mid-November amid speculations that the supply cuts would boost prices.


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