Oil prices dip as record U.S. crude stocks damp bullish sentiment

*Oil price dips.

*Oil price dips.

03 March 2016, Singapore — Oil prices reversed earlier gains on Thursday as swelling U.S. crude inventories outweighed growing sentiment that a 20-month-long market rout is coming to an end.

Brent futures rose to $37.17 a barrel on Thursday before falling to $36.67 by 0755 GMT, down 26 cents from its last close but up nearly a quarter since Feb. 11.

U.S. crude futures rose to a high of $34.88 a barrel before falling to $34.60, down 6 cents from their last settlement. However, U.S. crude has risen more than a third since Feb. 11, when prices dropped to levels not seen since 2003 at just over $26 a barrel.

Analysts said that the declines were the result of U.S. crude inventories surging to a new record that outweighed the bullish sentiment taking hold of the market.

“We continue to remain wary of possible rallies,” said Daniel Ang of brokerage Phillip Futures.

U.S. crude inventories rose 10.4 million barrels to a fresh record of 517.98 million barrels last week. [EIA/S]

The storage glut comes on the back of a global production overhang of 1 million to 2 million barrels of crude being produced every day in excess of demand, resulting in a 70 percent fall since mid-2014.

An agreement by major producers, led by Russia and Saudi Arabia, to freeze output at January levels will do little to reduce the glut.

Russia in February pumped oil at the same rate as in January at 10.88 million barrels b/d, an almost 30-year high, Energy Ministry data showed on Wednesday.

The output from Saudi Arabia is also above 10 million b/d.

“There are tentative signs of cooperation between OPEC and non-members to stabilize the market, but the probability for coordinated output cuts remains slim,” National Australia Bank said.

“As such we expect the global oil oversupply to last into 2017, keeping prices below $40/bbl for most of 2016 before rising to $50/bbl by end-2017,” it added.

Despite this, several traders said a more bullish sentiment was spreading.

“The market has suddenly started to focus on bullish headlines. This has created huge inflows, buying from hedge funds,” said Oystein Berentsen, managing director of crude at Strong Petroleum in Singapore.

In a sign of a strengthening market, top exporter Saudi Arabia, this week raised its oil prices to its main customers in Asia by 25 cents per barrel for April loadings.

The International Energy Agency, IEA, said this week that prices had likely bottomed out.

Prices have been driven higher since February by dipping U.S. production and signs of financial distress that might signal further production cuts to come.

U.S. crude output fell for a third month in December, down 43,000 barrels per day (b/d) to 9.26 million b/d as struggling oil companies succumb to the price rout.
*Henning Gloystein; Menasha Pereira; Editing – Tom Hogue & Christian Schmollinger – Reuters

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