USA crude inventories swelled 8.2 million barrels last week to a record 528.4 million barrels.
In a sign that OPEC's efforts have had little impact, oil shipments to Asia have increased 3 percent since the OPEC supply cut deal was made. The U.S. Energy Information Administration said domestic oil inventories fell in the week to March 10, the first dip after nine weeks of increases, but even then the fall was only 237,000 barrels.
Given the extent of long positions in the market, it was natural that some of those positions got liquidated in the absence of positive triggers.
"This shows in general that Opec is more concerned", says Vincent Elbhar, co-founder of GZC Investment Management, a Switzerland-based hedge fund. In the meantime, the technical picture still looks weak and further downside can not be ruled out.
There was a closed door meeting between Saudi officials and executives from top shale producers including ConocoPhillips (COP), EOG Resources (EOG) and Occidental Petroleum (OXY) warning producers that they shouldn't assume the cartel will extend the output cuts. Opec producers have implemented almost 98 per cent of the agreed cuts as per latest data.
Russia, which makes up more than half the total non-Opec reduction, has consistently said that its cut would be gradual, and this is also the case for some other countries. Caspian crude earlier this month traded at an 85-cent discount to its benchmark, compared with 5-cents a year earlier, according to data compiled by Bloomberg.
Oil prices extended gains in Asia Thursday as an unexpected drop in USA stockpiles boosted market sentiment.
Beyond the nervousness about this legacy supply and concerns about rising production today from some non-Opec countries; the implementation of the Opec production agreement appears in February to have maintained the solid start seen in January.
Also in the image, you can see non-OPEC oil production (plus OPEC NGL production) for the same three-year period. Nigerian output was higher at 1.8 million bpd as per latest data, up 0.2 mbpd from 1.6 million bpd in January.
"Despite the broad-based headlines of a holistic global oil surplus, we contend that certain markets such as Asia remain in a deficit, while regions like the Atlantic Basin and the USA remain in surplus". This comes at a time when US producers are eagerly taking advantage of rising prices to crank up production. It is hardly surprising, therefore, that we have a big backlog of unabsorbed crude oil, the IEA explained in the report. Beyond OPEC, oil production rose 90,000 bpd in February, as increasing US output offset declines elsewhere. If Saudi Arabia returns to higher production levels in order to regain market share, crude will be moving well below $50 per barrel for quite a while.
Senior Saudi officials told US oil companies in a closed-door meeting they should not assume OPEC would extend output curbs to offset rising USA production, industry sources told Reuters on Thursday.
Now, many USA shale oil companies have cut costs to the point where they are free cash flow positive with WTI around US$50 per barrel. OPEC members exceeded their pledged cuts in February, two delegates said.