US oil vs. OPEC - who will win?

10 March, 2017

US oil vs. OPEC - who will win?

US crude oil stockpiles soared for the ninth week in a row according to the EIA report. The latest push averaged around 8.2M barrels surpassing the projections of a 2M increase, which is causing the prices to erase this year’s gains. The API data was even more gloomy projecting the stockpile gains by 11M barrels.

The analysts were too conservative as in the last seven weeks the growth exceeded expectations in nine inventories. Backed by the protectionist aspirations of Trump and OPEC cuts the US producers are eager to boost output sending the commercial inventories to an all-time high since the data is tracked.

A recent calm in the energy market has been quickly subdued, which signals that the mounting bearish wagers were detonated after the latest release of daunting stockpiles data. With OPEC being tentative about slashing more output then confidence has been growing and the global glut is insurmountable for now. Nevertheless, in the Houston meeting on Tuesday, the OPEC officials showed that the producers are aware of the heavy oversupply leaving prices relatively resilient to cartel endeavours and even more cuts are necessary. The Saudi Arabia Oil head Khalid Al-Falikh acknowledged this fact. However, pushing the US drillers that are beyond the reach of OPEC eventually lead to an unexpected reaction of the managed money.

As the EIA data was announced on Wednesday, the price plummeted more than 5%. On Thursday, prices retreated as a part of the downside forces closed their shorts. Further rebound is unlikely as the energy market’s list of growth catalysts is basically empty. The next OPEC meeting will happen in the middle of this year, where members will discuss further measures how to bring the market to a balance. It’s important to keep an eye on the statements of the Oil officials, as they might try to talk up the prices hinting on more cuts. Prices remain vulnerable to the US data which has further potential to increase in the production that may put the bulls camp to a disadvantage, sending prices below $50.

Shares of the energy companies plunged while the oil-driven Rouble jumped one percent despite the carry trading pressure which has been holding the currency resilient to the recent fluctuations.

The currency investors hold their breath waiting for Draghi to shed some light on the ECB path. The head of ´the Europe’s Central Bank is to announce changes in inflation projections and drop clues on the timeframe for unwinding support of the economy. Euro balanced at 1.0550 in anticipation of the ECB comments while European indices retreat eroded by the slump in Oil producers’ shares. There are no signs of exodus ahead of the Central Bank event. Gold and Yen plunged, as Dollar rose in anticipation of the strong labour data due tomorrow.


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