OPEC cuts help drive crude prices to 19-month high

By Sharon Cho and Grant Smith on 2/24/2017

SINGAPORE (Bloomberg) -- Oil traded near the highest level since July 2015 as a drop in U.S. crude imports signaled that OPEC’s output cuts are taking effect.

Futures in New York are set for a 1.4% advance this week. U.S. government data showed crude inventories rose less than expected last week as imports dropped the most since November. The slowdown in the expansion of record stockpiles and shipments from overseas into America may signal the production cuts by OPEC are starting to tighten supplies globally.

“The sharp decline in the pace of builds was driven by lower imports,” said Amrita Sen, chief oil analyst Energy Aspects in London. Analysts from Goldman Sachs Group to Energy Aspects have said U.S. stockpiles were boosted by deliveries of crude purchases made before OPEC and other nations started cutting output in January.

While the inventory expansion, which has kept prices in a tight range above $50 this year, slowed last week, Citigroup says the glut OPEC members created by boosting output just prior to their December deal means they will need to prolong their cuts beyond June.

WTI for April delivery was at $54.15/bbl, down $0.30, on the NYME. Prices on Thursday rose $0.86 to close at $54.45, the highest settlement since July 2, 2015. Total volume traded was about 30% below the 100-day average.

Brent for April settlement dropped $0.34 to $56.24/bbl on ICE Futures Europe. The contract advanced $0.74 to $56.58 on Thursday and is headed for a 0.8% gain this week.  The Brent benchmark traded at $2.09 premium to WTI.

U.S. Inventories

Crude stockpiles climbed by 564,000/bbl last week to 518.7 MMbbl, according to the EIA. While total inventories are at the highest in weekly data going back to 1982, the increase trailed a 3.25 MMbbl gain projected by analysts surveyed by Bloomberg and is the smallest build this year.

Supplies at Cushing, Oklahoma, the biggest U.S. storage hub and the delivery point for WTI, dropped by 1.53 MMbbl, the steepest decline since October of last year.

Crude imports to the U.S. fell 14% to an average 7.29 MMbpd for the week ended Feb. 17, compared with 8.49 MMbbl in the previous week, according to preliminary EIA data. Oil exports from the world’s biggest economy surged to a record and domestic production rose to 9 MMbpd last week.

OPEC and its partners have achieved 86% of their agreed cuts, according to a January technical report. The group’s Joint Technical Committee submitted its report to the Joint Ministerial Monitoring Committee, which oversees compliance.

Oil-Market News

While Saudi Arabia has said Aramco is worth more than $2 trillion, industry executives, analysts and investors told Bloomberg their analysis, based on oil reserves and cash flow projections under different tax scenarios, suggests the company is worth no more than half, and maybe as little as a fifth, of that amount. OPEC pumped at will the past two years to defend its turf against rivals. Its recent reversal has left it contending with additional threats in the world’s biggest oil market. Crude that’s rarely or never-before seen coming to Asia is now sailing from all over the globe to the region.

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