API reports deficit while the market awaits EIA report

Oil continues to decline over the worry that the oil market which is physical remains well supplied despite a supply reduction of 1.76 million barrels per day by OPEC and N-OPEC countries.  WTI is currently trading at $43.5 per barrel and Brent at $2.4 per barrel premium to WTI.

Key factors at play in crude oil market –

• Middle East brawl entered its third week as nine countries like Saudi Arabia, United Arab Emirates, Bahrain, Egypt and Yemen has severed diplomatic ties with Qatar citing the latter’s support for extremist ideas and terrorist groups, and also of meddling in other countries’ affairs.
• Turkey has so far supported Qatar and called to end the blockade and finding a diplomatic solution.
• Libya will increase production to 1 million barrels per day by the end of next month.
• OPEC leaders and participating N-OPEC countries have agreed to an extension to the current supply cut deal for nine months until March 2018 that aims to reduce global oil supply by 1.76 million barrels per day.
• Saudi Arabia and Russia’s oil ministers have tried to support prices by suggesting that they are ready to do whatever it takes to rebalance the market. That effort failed to bear fruit.
• In May, OPEC production rose by 366,000 barrels per day, thanks to Libya and Nigeria.
• May report shows that OPEC still remains in full compliance with the deal as a group but many members are yet to adhere to the agreed levels.
• US production rose from 8.428 million barrels in last July to 9.33 million barrels per day last week. This is the highest level of production since April 2015.  Payrolls are once again rising in the oil and gas sector according to ADP job numbers.
• The oil market is in backwardation but a small one, currently at $0.05 per barrel.
• API reported a draw of 2.72 million barrels of crude oil.

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

• We continue to maintain bearish outlook in oil and expect WTI to decline towards $40 per barrel.

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