Article / 21 September 2016 at 13:37 GMT

Oil bouncing from one headline to the next

Head of Commodity Strategy / Saxo Bank
  • Crude oil rises after API print shows sizeable reduction
  • EIA report arrives today with estimates contradicting the API figures
  • WTI crude prices not likely to exceed recent range without freeze deal

Crude oil prices are shifting in the winds of conflicting headlines 
ahead of next week's energy summit in Algiers. Photo: iStock

By Ole Hansen

Crude oil has risen ahead of the weekly petroleum status report from the Energy Information Administration. This comes after the American Petroleum Institute yesterday reported a bumper 7.5 million barrel reduction, thereby going against expectations. 

Overall the market remains very headline-driven with the focus shifting on a near-daily basis. 

Opec continues to do its level best to drum up expectations ahead of next week's meeting in Algiers. The International Energy Forum's conference there has received a lot of attention as it brings together key decision makers from both Opec and non-Opec producers. 

If we were to take the latest comments from various Opec members at face value, the cartel will hold a formal meeting to discuss ways of cutting production by one million barrels/day in order to bring the price within a $50 to $60/barrel range within six months. 

In order for such a deal to be successful, non-Opec members such as Russia probably also need to contribute with cuts. This, however, has been made easier after the Russian Ministry of Energy said earlier today that Russian production reached another historic high this month of 11.75 million b/d compared with 10.2m b/d last September.

Since the current price slump began two years ago, four of the major oil producers have raised their combined production by more than 3.3m b/d.

Major oil producers

During the same timeframe, production from Libya and Nigeria has slumped by close to 0.6m b/d. The reopening of Libya's third-largest port combined with news from oil companies in Nigeria about rising production could see production in these two countries rise sharply by up towards 0.8m b/d over the coming months. 

As if these conflicting reports were not enough, traders also had to deal with the potential impact of the Federal Open Market Committee meeting later and a pipeline outage in the US which recently helped trigger a major surge in RBOB Gasoline. On top of that, we have today's inventory report from the EIA where surveys differ wildly from what the American Petroleum Institute reported last night. 

Latest EIA petroleum status updates and latest Bloomberg expectations:
EIA expectations
Overview of recent developments among key data:
EIA inventories
WTI crude oil has found resistance today at $45.15/b after retracing 50% of the latest selloff. Overall, the market continues to gravitate around $45/b which has been the average price during the past six months. 

Without a deal to freeze production the upside is likely to remain limited to the upper band of the current range at $47.50/b. 

WTI crude oil, first month cont.

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Source: Saxo Bank 

— Edited by Michael McKenna

Ole Hansen is head of commodity strategy at Saxo Bank


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