Oil hovered around a three-month low on Monday as rising US stockpiles and drilling activity offset the optimism over Organization of the Petroleum Exporting Countries’ (OPEC) efforts to restrict crude output.
Brent crude was down 7 cents on the day, at $51.30 per barrel by 1202 GMT, having hit a session trough of $50.85, its lowest level since November 30. US West Texas Intermediate crude (WTI) fell 15 cents to $48.34 per barrel. The price has fallen by more than 8pc since last Monday, its largest week-on-week drop in four months.
“The market is bearish because sentiment has turned. The risk is still towards the downside, but we are nowhere near the precipice,” said PVM Oil Associates Tamas Varga. Goldman Sachs said in a note that it remained ‘very confident’ about commodity prices and maintained its price forecast of $57.50 per barrel for WTI in the second quarter.
U.S. drillers added oil rigs for an eighth consecutive week, Baker Hughes said March 10, lifting spending to benefit from an earlier recovery in crude prices since OPEC agreed to cut output.
OPEC and other major oil producers including Russia reached an agreement late last year to rein in production by almost 1.8m barrels per day (MMbb/d) in first-half 2017.
Although OPEC states have been complying with supply curbs, led by Saudi Arabia, it has not been enough to overshadow a rise in U.S. inventories to a new high.
“It will be interesting to see how OPEC rhetoric will evolve with this price correction. Is price the only consideration when it comes to the decision of extending cuts?” said BNP Paribas global head of commodity strategy Harry Tchilinguirian.
He added that OPEC’s task was more difficult as it aimed to cut inventory levels rather than simply target a specific price.
Money managers cut their net-long positions in U.S. crude futures and options in the week to March 7.
For the broader financial markets, the focus will be on the Federal Reserve’s policy meeting later this week at which it could likely raise U.S. interest rates.
“The week ahead is packed with potentially market defining releases,” Michael McCarthy, chief market strategist at Sydney’s CMC Markets, said. “However, the key to market performance this week is the response to the U.S. lift in rates.”
