Brent falls after hitting $70 for first time in 3 years

  • Brent falls after hitting $70 for first time in 3 years

Brent falls after hitting $70 for first time in 3 years

Relatively weak Chinese December oil data weighed on prices, traders and analysts said. Wednesday saw Crude trade above $64 with Brent within an whisper of $70 and backwardation explained above continues to support the backdrop.

Last year, most oil prices have recovered from trading below the $40 level due to the growing market hopes of the OPEC extending the deals again with oil prices touching near above the $50 per barrel price level if not for the sudden rise in US crude inventories that offset the gains of crude oil prices.

"The steady, if not rapid, decline in US crude oil inventories from persistently high refinery demand and elevated exports has firmly registered with the market", said John Kilduff, partner at Again Capital LLC in NY.

So, I would be very surprised if Brent oil goes significantly above $70-$75 or WTI north of $65-$70 a barrel.

A broad global market rally, including stocks, has also been fuelling investment into crude oil futures.

Brent Crude
Daily March Brent Crude

US crude oil production increased in 2017 by more than 384,000 barrels per day (b/d) to 9.2 million b/d, based on data through September and estimates from the December Short-Term Energy Outlook (STEO) for the remainder of 2017.

Markets may react later in the day when drilling services company Baker Hughes releases its weekly tally on exploration and production activity. The decline in crude stocks fell short of industry group the American Petroleum Institute, which reported an 11 million-barrel crude draw on Tuesday evening.

Inventories slid below 50 million barrels until the week that ended on December 29, the first time below that level since February 2015, according to EIA data. In 2017 as a whole, Chinese crude oil imports increased by 10% to a record average level of 8.41M barrels per day. While the global market is balancing, there are still more than 100 million barrels of surplus inventories that need to be cleared, according to United Arab Emirates Energy Minister Suhail Al Mazrouei. Saudi Arabia and Russian Federation will co-chair a monitoring committee created to assess the group's adherence to the production targets.

"The fundamental factor right now is declining oil inventory and rising geopolitical risk with Iranian sanctions taking oil off the market specifically", said Rob Thummel, portfolio manager at Tortoise Capital Advisors. "We'll see more noise and rhetoric if prices trade above $70 a barrel in coming days to push this market back down".