Oil prices mixed despite OPEC chatter on long-term coordination

Crude oil extends gains, but upside limited as dollar edges up

Crude oil extends gains, but upside limited as dollar edges up

The NBK note by senior economist Omar Al-Nakib said that the recent rise in oil prices had been supported the OPEC/ non-Opec deal to curb supply, as well as "robust oil demand, supply outages, heightened geopolitical risk premia and, up until recently, a weakened United States dollar".

The Saudi energy ministry said that Saudi Aramco's crude output in March will be 100,000 barrels per day (bpd) below its February level while exports would be kept below 7 million bpd.

While oil prices have traditionally moved in tandem on risks to global supply and demand, the domestic factors now in play in the oil markets kept price movements apart on Tuesday.

Foreign currency trader Oanda Corp Asia Pacific trading head Stephen Innes said oil prices finished modestly higher on Friday to chalk up a weekly gain, as prices continue to see-saw between the binary descriptions from OPEC's ongoing efforts to blow out the worldwide glut against the indications of rising USA production. "We are optimistic about 2019 and 2020 too". The inventory uptick in the last three weeks, therefore, acted as another negative trigger.

"This has left stocks in the hub below the five-year average for this time of year", said Warren Patterson at ING. A stronger dollar on Tuesday saw most commodity prices - which are denominated in the U.S. currency - fall.

However, earlier this week both Saudi Arabia and Russian Federation admitted publicly that the metric to measure stockpiles is flawed and must be replaced - which implies that any claim made by OPEC or other parties about the true state of the crude market is questionable at best. Estimates suggest that OPEC oil output was largely unchanged at 32.5 mbpd in January and overall compliance touched 138 per cent.

That was largely due to soaring U.S. crude production, which has jumped by over 20pc since mid-2016 to more than 10m bpd, surpassing that of top exporter Saudi Arabia and coming within reach of Russian Federation, the world's biggest producer.

On balance, while the medium to long term trend still remains positive, oil prices could see further correction in the near term, given that key technical levels have been breached and speculative positions still remain elevated.

Early enthusiasm over the pace of economic growth helped drive broad-based market optimism to extend a rally in oil prices for most of January. However, failure to breach this resistance zone could cap further gains and once again result in a slide towards immediate support at Rs 3,960-3,930 range.

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