API reports deficit while the market awaits EIA report

WTI is faced with heavy selling pressure as the producers continue to hedge, while speculators doubt the ability of the OPEC and N_OPEC deals reigning on supply. WTI is currently trading at $51.5 per barrel and Brent at $3 per barrel premium.

Key factors at play in crude oil market –

• While Saudi Arabia, Qatar, Oman indicated compliance to the deal, exports from Iraq are set to rise through February. Watch the following countries’ production to measure the deal’s success: Saudi Arabia, Libya, Nigeria, Russia, Iran, and Iraq.
• US production rose from 8.428 million barrels in last July to 8.95 million barrels per day last week. Payroll report showed that jobs were added in the oil and gas sector for the first time in more than 2 years. In November jobs increased by 3,300 after a loss of more than 150,000 in last two years.
• Saudi oil minister said that the current deal need not be extended beyond June when it expires.
• Contango in the oil market remains, indicating that the supply squeeze in the market is not large enough to cause backwardation. The near month future is trading at 43 cents premium to cash.
• API reported a draw of 5.042 million barrels of crude oil.

Today’s inventory report from US Energy Information Administration (EIA) will be released at 16:00GMT. Trade idea –

• We expect the WTI to extend gains towards $59 per barrel, and then towards $67 per barrel. However, a decline towards $46 per barrel in the short term can’t be ruled out. We don’t suspect the oil price to break below $42 stop loss area for the long call.