API reports large draw while market awaits EIA report

Oil benchmarks are struggling, despite the fact that supplies are declining relatively rapidly from OPEC since December last year. However, economic growth concern in Europe and China are exerting downward pressure. WTI is currently trading at $59 per barrel and Brent at $8.6 per barrel premium to WTI.

Key factors at play in the crude oil market –

• OPEC and non-OPEC members decided to cut oil output by 1.2 million barrels per day, where OPEC would bear 0.8 million supply cut, and the rest would be borne by the Russia-led non-OPEC. According to OPEC’s monthly oil report, the supply dwindled by almost 0.8 million barrels in January, and OPEC as a whole is almost 80 percent compliance with the new agreement. However, the majority of the members remain non-compliant and the decline in production was largely due to production decline in Saudi Arabia and UAE.
   
• Reuters’ survey suggests that the OPEC has reached full compliance in February, largely due to over the requirement cuts by Saudi Arabia, Kuwait, and United Arab Emirates.
   
• President Trump continues to attack higher oil price and OPEC’s production cuts, while the United States Congress is considering a bill to sue OPEC members responsible for market manipulation.
   
• Beginning November, the U.S. has re-imposed all the sanctions on Iran and has threatened to counter sanctions on any countries or bodies which violate the sanctions. However, the U.S. has granted a 180-day waiver of sanctions to several big Iranian crude oil importers like China, Korea, and India. The recent report suggests that the USA is resisting calls for an extension of the waiver or an increase in the limits. EU, alongside Iran, Russia, and China have created a special purpose vehicle (SPV) to bypass the U.S. sanctions for companies operating in Iran. However, recent reports and comments suggest that the relationship is souring. Since the beginning this month, Iran’s supreme leader Khamenei has been warning the Iranian government against trusting European partners.
   
• Venezuela in crisis as oil production declined to 1.1 million barrels per day in January. The country is in turmoil as President Maduro closed borders with Brazil and Columbia to prevent weapon supplies to radicals. Russia could help in bringing President Maduro to the negotiating table.
   
• U.S.  Crude oil production has reached 12.1 million barrels, well before EIA’s own projection.
   
• Oil future curves have now flipped further into backwardation. The closest month backwardation stands at $0.4 per barrel. (WTI)
   
• API reported another surprise draw 2.133 million barrels of crude oil. Gasoline saw a draw of 2.125 million barrels.

Key global oil benchmarks:

• WTI - $59.1/barrel
• Brent - $67.7/barrel
• OPEC basket - $67.2/barrel
• Urals - $67.6/barrel
• Oman - $66.3/barrel
• Dubai - $65.8/barrel
• Western Canada Select - $41.7/barrel

Today’s inventory report from the US Energy Information Administration (EIA) will be released at 14:30 GMT.