Thursday, December 8, 2016

Oil Prices Edge Lower Amid Doubts Over OPEC Output Cut

By Jane Chung and Keith Wallis
December 8, 2016

Oil prices gave up some early gains to turn lower in Asian trade on Thursday on mixed U.S. crude stocks data and doubts over OPEC's implementation of an output cut, although a weaker dollar put a floor under prices.

International Brent crude futures were trading down 16 cents at $52.84 a barrel at 0659 GMT from their last close. Prices rose to $53.20 a barrel earlier in Thursday's session.

U.S. benchmark West Texas Intermediate crude dropped 15 cents to $49.62 a barrel after climbing to $50.07 earlier on Thursday.

Crude oil inventories in the United States dropped 2.4 million barrels in the week that ended on Dec. 2, compared with analyst expectations for a draw of 1 million barrels.

But stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures, increased by a hefty 3.8 million barrels last week, the most since 2009, according to data from the U.S. Energy Information Administration (EIA) on Wednesday.

"Momentum continues to wane in crude with mixed EIA crude inventories data and shale producers hedging via futures," said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore.

Oil prices have rallied since the Organization of Petroleum Exporting Countries (OPEC) and Russia reached a landmark agreement last week to cut production to erode a global supply overhang and prop up prices.

The U.S. dollar index fell as Treasury bond yields eased and as investors eye next week's Fed meeting.

"A slightly weaker U.S. dollar is supportive of oil prices," Michael McCarthy, chief market strategist at Sydney's CMC Markets said. A weak dollar makes dollar-denominated oil less expensive for importing countries.

Oil prices initially rose on Thursday, supported by upbeat investor sentiment on the underlying strength in the U.S. economy, McCarthy said.

But doubts remain over whether OPEC will be able to comply with output cuts and whether those curbs will be enough to rebalance markets.

"Talk about OPEC compliance worries is a bit of a red herring. As in the past, OPEC compliance/non-compliance is a known unknown. What the crude rally really needs is new news to reinvigorate a speculative market already positioned long," added Halley.

OPEC and non-OPEC oil producers will meet again this weekend in Austria's capital to discuss the details of last week's agreement, which aims at an overall reduction in output of around 1.5 million barrels a day.

"Oil markets might see a pick-up in volumes as we enter the European trading session," McCarthy added.

China's crude oil imports rebounded strongly in November from the previous month and were up 18 percent on a year ago, while exports of refined fuel hit a record high as refiners rushed to ease an expanding domestic surplus.

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