U.S. West Texas Intermediate and international-benchmark Brent crude oil posted a volatile two-sided trade last week before settling lower. The bullish price action was fueled by a bigger-than-expected draw in U.S. inventories. The bearish news was increased production from OPEC.
September WTI crude oil futures settled at $45.77, down $0.98 or -2.10% and October Brent crude oil finished the week at $48.31, down $0.86 or -1.75%.
Crude oil futures reached their highest level since June 7 after a big drop in U.S. crude and gasoline stockpiles. Distillate inventories also posted a surprise draw.
According to the U.S. Energy Information Administration (EIA), U.S. crude stocks fell 4.7 million barrels during the week-ending July 14. This exceeded estimates for a 3.2 million draw.
The EIA also said gasoline stocks declined 4.4 million barrels and distillate stocks decreased 2.1 million barrels. Analysts polled by Reuters had forecast a 0.7 million barrel draw in gasoline and a 1.2 million barrel build in distillates.
Prices rose despite the EIA reporting U.S. production climbed to 9.43 million barrels per day (bpd), its highest since July 2015.
The rally didn’t last very long as sellers wiped out the week’s gains on Friday after a tanker-tracking firm reported supply from OPEC is rising.
According to PetroLogistics, a company that tracks OPEC supply forecasts, OPEC’s July oil supply was set to rise by 145,000 bpd compared to June. The increase in oil supply would push production above 33 million bpd.
Higher supply from Saudi Arabia, the United Arab Emirates (UAE) and Nigeria would drive this month’s gains, according to PetroLogistics.
In other news, oilfield services Baker Hughes reported its weekly count of oil rigs operating in the U.S. ticked down by one rig to a total of 764.
Forecast
The downside momentum created by Friday’s sell-off could continue early this week due to further position-squaring ahead of a key meeting on July 24 between OPEC and non-OPEC members in St. Petersburg, Russia. The market is looking for clear signs that the production cuts are having an impact on prices.
Bullish traders are hoping the oil-producing countries reach some conclusion as to compliance of agreed production cuts and how to bring down inventory levels. OPEC and other oil exporters, including Russia, agreed to remove 1.8 million barrels a day from the market in an effort to stabilize prices and decrease the global supply glut.
Despite the agreement, OPEC faces increasing uncertainty after cartel member Ecuador said it will start to increase production again due to revenue reasons.