Oil falls on China concerns, down 3 percent for the week on OPEC doubts
Record Chinese crude imports of 8.6 million barrels per day (bpd) in December helped to buoy prices somewhat, traders said, but they could not hide underlying fears over the overall health of the world’s second-biggest economy.
Brent crude futures LCOc1 settled 56 cents lower at $55.45 a barrel, ending the week with a loss of about 3 percent.
U.S. West Texas Intermediate CLc1 crude futures fell by 64 cents to close at $52.37 also notching a weekly drop of nearly 3 percent.
“China right now seems more interested in keeping capital in the country than focusing on growth overall,” Phil Flynn, analyst at Price Futures Group in Chicago said.
“We have to watch this situation develop because this is one threat to what is an otherwise wildly bullish scenario for oil in the coming year.”
On the supply side, there was some market support from top crude exporter Saudi Arabia, which said that its output had fallen below 10 million bpd to levels last seen in February 2015 and that it expects to make even deeper cuts next month.
However, hard evidence of export reductions has yet to emerge, two weeks into the month in which the cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, such as Russia, were supposed to start.
“Compliance won’t be 100 percent; it never is,” an OPEC source told Reuters, adding that an overall rate of 50 percent to 60 percent would be good enough, based on past compliance levels.
Although, OPEC Secretary-General Mohammed Barkindo told Reuters he was sure countries would follow through on the deal.
Libya’s oil production increased to 750,000 barrels per day (bpd), the deputy leader of the U.N.-backed government said, a rise of about 50,000 bpd from last week.
“I think the bigger issues for oil are less about demand right now and a lot more about the supply condition,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.
“EIA data and our own government policies have to leave you thinking that a U.S. production response may unwind all the production cuts Saudi Arabia and others are planning.”
Data from the U.S. Energy Information Administration showed crude production rose notably last week, particularly in the lower 48 states. Overall production was 8.95 million bpd last week, the most since April of last year.
Saudi Arabia is likely to cut heavy oil production rather than light in order to maximize revenues, and as U.S. supply comes back, more light barrels will likely enter the market, Bank of America Merrill Lynch said in a note.
U.S. oil drillers cut rigs this week for only the second week in the last seven months, seen by traders as a pause in a recovery expected to last into 2018. -Reuters