Oil got a boost from weaker USD & OPEC jawboning

  • A weaker USD is helpful for oil.
  • Oil was under pressure on increasing US production.

Oil (WTI) is now trading around 59.80 at mid-New York session, jumping by almost 1% and well off the multi-weeks low of 58.06 mapped last Friday on a slump in USD and some hawkish jawboning from UAE´s oil minister, highly optimistic on earlier rebalancing amid solid demand this year despite concerns of higher US shale oil productions. A weaker USD is good for oil by making dollar-priced crude cheaper for holders of other currencies. Oil was also under stress on an imminent launch of Yuan dominated oil contract by China starting March 26th.

Oil was under huge pressure last week on higher than expected US oil production coupled with surge (+26) in US oil rigs (Baker Hughes data). The North Sea Forties pipeline supplies resumed, while another oil refinery unit at Woods River (Illinois refinery) was also damaged having a significant crude refining capacity (negative for WTI).

Surging US productions is a serious headwind for oil:

Overall, last week’s EIA data for oil were bearish on headline basis and coupled with the surging US production, higher-than-expected distillates, and gasoline inventories may be pointing towards an imminent glut in the oil market despite production cut efforts by OPEC & N-OPEC (Russia).

The EIA expects US output to reach an average of 10.59 mbpd in 2018 and 11.18 mbpd by 2019, accelerating earlier estimates. That should continue to drive US exports, pinching OPEC efforts to reduce supply, and puts the US in line to potentially overtake Russia as the world's largest producer. But falling oil production from Venezuela amid an economic crisis there and robust demand for diesel (gasoline) from Asia (China & India) is also supporting the oil. The present surge in US crude stockpile may be a function of annual maintenance & refinery shut down for winter, therefore it may be seasonal.

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