If oil keeps plunging, can stocks keep holding up?
The recent weakness in crude oil could prove to be a positive for equities, according to one chart-minded strategist.
WTI crude remained below $50 per barrel early Friday, already having slipped nearly 6 percent this week, but stocks were steady as the S&P 500 and Dow Jones industrial average were in the green. Crude oil supply in the U.S. has reached record highs, fueling some doubts about OPEC-led agreements to curb production.
Before the November production agreement, low oil prices were considered a bearish sign for stocks. Now, however, Oppenheimer technical analyst Ari Wald said he’s not concerned about sinking crude oil prices’ effects on equities.
“In fact, I think for the long run this could be quite positive,” he said.
In looking historically at crude oil’s 52-week rate of change, Wald found that the worst forward performance in the S&P 500 occurred when the price of crude oil was higher per barrel. A high rate of change for oil is a proxy for an “economic boom,” Wald said Thursday.
“Overall, stocks ex-those tied to oil prices, should continue to do well as long as oil prices are low and stable, and avoid a steep run-up,” he wrote in an email.
In an interview on CNBC’s “Trading Nation” Wald said that if anything, the recent downturn in crude has removed a potential headwind for stocks not directly tied to oil prices.
Oil could continue to weaken, given the likelihood of a Federal Reserve interest rate hike, which could strengthen the U.S. dollar and slow economic growth, said 55 Capital Partners strategist Max Wolff.
“Both are bad for oil,” as well as for stocks, Wolff said. “We see the commodity space and oil as a better economist than the markets lately.”
The price of U.S. crude oil has dipped below $50 for the first time since December as a global supply glut persists despite production cuts by big exporters.
In November, the Organization of Petroleum Exporting Countries and other oil-producing nations agreed to lower their output for much of 2017 to rein in chronic oversupply and to boost prices. But drilling and stockpiles of oil have continued to rise, particularly in the U.S.
West Texas Intermediate (WTI) oil, the U.S. benchmark, fell $1.23 a barrel to $49.05 on Thursday, and is down 9% in March.
Brent crude oil, the benchmark for international oils, declined 54 cents a barrel to $52.57.
U.S. commercial crude supplies have risen for nine straight weeks, reaching a record 528.4 million barrels last week, according to the U.S. Energy Information Administration. That was an increase of 8.2 million barrels from a week earlier.
“The rising crude inventory levels in the US to new all-time highs has been the No. 1 reason why prices have been unable to move further higher,” Fawad Razaqzada, market analyst at Forex.com, wrote to investors Wednesday.
The effects of lower oil prices have reverberated through the economy. Prices at the gas pump have fallen since early January, putting more money into drivers’ pockets. The average U.S.gas price peaked this year at $2.38 on Jan. 8, but has since fallen to $2.30, according to GasBuddy.com.
As the weather warms up and more Americans hit the road for spring break and summer, prices typically rise about 60 cents a gallon from mid-February to June 1, says Patrick DeHaan, senior petroleum analyst at GasBuddy. “This year, if (the oil price) drop sticks around, we could see far less of a rally. It could be even half of that,” he said.
That same drop, however, has caused pain in other areas. Shares of oil companies have sagged in recent weeks as analysts’ cut their earnings predictions for the industry. The S&P 500 Energy Index is down 8.5% for the year. ExxonMobil’s stock opened at a 52-week low Thursday, though it rebounded later and finished up 0.8% for the day.
So far, any signs that domestic stockpiles and production could wane have been faint. The Trump administration has been vocal about its desire to remove regulations that hinder U.S. production. And that “could see a surge of domestic crude driving down prices even further,” said Alfonso Esparza, market analyst at brokerage firm OANDA.
U.S. oil output is expected to increase to an average of 9.7 million barrels per day in 2018, with more production in the Permian shale region of Texas and New Mexico, as well as the Gulf of Mexico, expected, according to the U.S. Energy Information Administration.
“U.S. crude oil production is now expected to reach an all-time high in 2018,” Howard Gruenspecht, acting administrator of the E.I.A., wrote in the agency’s March 2017 Short-Term Energy Outlook. “Rising crude oil production from non-OPEC countries, especially from the United States, is expected to curb upward pressure on oil prices for much of 2017.”
Despite the sell-off Thursday, Razaqzada, the analyst at Forex.com, said he expected oil prices to rebound to the $60 to $70 range by the end of the year.
Demand typically rises in the summer, and some analysts expect the effects of OPEC-led supply cuts, which went into effect Jan. 1, to become more noticeable later this year.
Crude oil prices continue to trade off of yearly highs, but have failed to breakout significantly for the 2017 trading year. As such, traders continue to wait for a market catalyst to cause the commodity to breach key values of either support or resistance. Key news for this week includes the release of US employment data this Friday. Expectations for US NFP (Feb) is set at +190k, while the US Unemployment Rate is set to be released at 4.7%.
Technically the price of crude oil remains in an ongoing daily trading range, which is depicted below. Current daily resistance remains located at the January 3rd 2017 peak at $55.67. Alternatively, crude oil prices remain supported above the January 10th low at $51.34. As prices continue to ping between these values, traders may continue to reference these points for a potential market breakout.
Monday’s trading has prices in the middle of this $4.33 range. Currently short term momentum is pointed lower, with the price of crude remaining under the 10 Day EMA found at $53.63. If prices continue to decline this week, traders may look for crude oil to return to support and potentially breakout lower. In the event of a bearish breakout, traders may use a 1x extension of this range to find preliminary pricing targets near $47.01. Alternatively if prices remain supported, traders may look for crude oil to bounce and retest resistance at the standing 2017 high. In this scenario, bullish breakout targets for crude oil may be identified near $60.00.
In the event that prices fail breakout, traders may elect to trade the continuing range or look for opportunities elsewhere.
Reversing Nigeria’s Deferred $100bn Crude Oil Income
Recently, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, reiterated that on account of militancy in the Niger Delta, Nigeria could not earn about $100 billion oil revenue in 10 years as he also opened up on plans to reverse the loss. Chineme Okafor reports
Though not entirely new, Kachikwu in a podcast he released recently stated that between $50 and $100 billion was not earned by Nigeria in 10 years because of frequent attacks on oil and gas infrastructure by the Niger Delta militants.
Kachikwu explained that at the peak of militancy within these periods, oil revenue dropped drastically, and production particularly ebbed from 2.2 million barrels per day (mbpd) to one million barrels per day in 2016
He said: “As at 2016 on the average and looking at it historically that Nigeria was losing $50 to $100 billion as a result of the disruption.”
He specifically added that the country’s oil and gas industry could not earn over $7 billion from January to October 2016, saying that over the last decade spanning through various administrations, the industry suffered critical disruptions to operations resulting in the unearned incomes.
According to Kachikwu, the unearned income also included that which international oil companies (IOCs), independent producers as well the Nigerian National Petroleum Corporation (NNPC) could not take from their operations in the fields.
“This is a problem that has consistently been there even before the government of President Obasanjo, and it went on into other governments. It is a problem that seems to be intractable. So, it is a difficult undertaking to try to embark on trying to resolve it once and for all, but we are very bullish about this,” Kachikwu said to buttress the longstanding existence of militancy and its impacts on Nigeria’s oil production.
Similarly, the Nigerian Petroleum Development Company (NPDC), a subsidiary of NNPC had from February 2015, consistently reported substantial deferred revenue averaging N25 billion per month from the a subsisting force majeure declared by Shell Petroleum Development Company (SPDC) following the destruction of 48-inch Forcados crude oil export line.
Plans to reverse the trend
While the NNPC has repeatedly said in its monthly operations report that comprehensive measures to limit the impacts of oil assets destructions on the financials of the corporation were being initiated but with some success from stopgap approaches, Kachikwu in the podcast disclosed some detailed plans he would adopt to end this.
According to the minister, a 20-point agenda which include periodic engagements with communities and stakeholders in town hall meetings, inter-agency collaboration, ring-fenced state approach to security of oil installations, as well as security hold-hands efforts to guarantee peace and investment on state basis would be adopted.
He also listed focused investments in gas-to-power, incentive for peace scheme, massive revamp of social infrastructure bases of the communities and establishment of a Niger Delta Development Fund Initiative, as the other approaches he hoped would end militancy in the Niger Delta.
Christened “Oil Sector Militancy Challenges…Roadmap to Closure,” Kachikwu explained that the new approach was aimed at instituting permanent peace in the oil-producing region.
According to him, the Niger Delta crisis, coupled with the 45 per cent drop in oil production, worsened the financial challenges of the President Muhammadu Buhari administration. He added that the new measures would address this financial challenge to the government.
Additionally, the minister emphasised that the crisis resulted in attacks on oil and gas facilities and the sub-optimal performance of the country’s refineries. He noted that Nigeria was unable to meet its international obligations as a result of the militancy.
Kachikwu explained that the new measure would build on existing efforts initiated by the government to end the crisis. According to him, a seven-point roadmap that included engaging the oil-producing communities and sustaining the Amnesty Programme for the repentant militants were in existence already.
Insisting that the administration was determined to tackle militancy and achieve peace in the region, Kachikwu noted that it would be bullish in its focus on remedying the environment of the Niger Delta, which he said was also rich enough for aqua tourism for revenue generation.
To clean up the environment, Kachikwu said Buhari would continue to implement the existing seven-point agenda and other behind-the-scenes engagements of relevant stakeholders.
According to him, the first point on the 20-point agenda he plans to launch would be for oil companies to engage the state governments and communities on issues affecting a particular state.
The second point, he noted, would focus on inter-agency collaborations between the Ministries of Petroleum Resources and the Niger Delta, as well as the NDDC on crosscutting development and operational issues of the region. The third point would be a ring-fenced approach to ending the militancy. On this, he stressed that the Federal Government would stop dealing with militancy as a national issue and adopt a state-by-state approach to ending it on the ground that each state in the region appeared to have peculiar challenges that prompt militancy in their areas.
Kachikwu said government would focus on creating 100,000 jobs in each of the oil-producing states in the Niger Delta in the next five years, while the Amnesty Programme would be decentralised because Federal Government can no longer fund the programme alone as a result of dwindling oil revenue.
Another plan under the agenda Kachikwu launched would be to adopt the “Security Hold Hands Approach”, which according to him, was aimed at strengthening security in the region through the collaboration of all the relevant agencies.
He also identified peace and investment initiatives as another focus in the new agenda, and stressed that peace encourages investment while crisis serves as a disincentive to investment. He noted that the agenda would encourage states in the region to continue to pursue peace in exchange for improved investment.
The minister equally added that there would be a core business focus wherein the Federal Government will continue to attract business opportunities to the Niger Delta, stressing that at the core of the militancy was the lack of economic opportunities for inhabitants of the region to earn decent lives for themselves and their families.
He said the setting up of cottage industries and business startups in the region will encourage violent agitators to shun militancy and engage in business activities that will earn them good incomes.
Kachikwu said that oil companies would be encouraged to embark on the revamp of oil and gas infrastructure in the Niger Delta, in addition to focusing on the “clean-up of our mess”. He noted in this respect, that the government had launched the Ogoni clean-up exercise which should restore the environment of Ogoni land.
Other aspects of the 20-point plan included the domestication of oil and gas business opportunities to achieve greater participation of the people of the oil-producing region without excluding other Nigerians.
He said the government would also encourage education programmes in the Niger Delta to make the people embrace education and shun militancy. He stated that the Amnesty Programme would be launched on a state-by-state basis to create opportunities for 5,000 to 10,000 youths in each states of the region.
Further on security and peace, Kachikwu explained that ensuring justice for all the stakeholders in the region would be the major plank of the agenda, while the government would continue to strengthen the military and other security agencies to maintain peace as it would no longer accept instances of militants holding the country to ransom.
Crude oil has slumped over 2 percent this year and could see more pain ahead if OPEC does not stick to production cuts it agreed upon in December.
“I think oil is in a very dangerous zone now precisely because demand is not there,” Boris Schlossberg, BK Asset Management’s managing director of foreign exchange strategy, said Wednesday on CNBC’s “Power Lunch.”
A build in crude oil inventory Wednesday as reported by the Energy Information Administration in fact sent oil higher, settling up 17 cents to $52.34.
“The irony of this whole thing is that OPEC cuts are holding, but the demand is not there. And the longer oil wallows at this $52 level, the more likely it’s actually going to go to the downside. And if it trips to $50 a barrel stops, I think it could really tumble very quickly. So I think we’re in a perilous territory,” Schlossberg said, adding that he wouldn’t be long crude oil at this juncture.
OPEC agreed in December for the first time since 2008 to cut output by 1.2 million barrels per day.
Indeed, oil has traded in a range of roughly $50 to $55 per barrel, said David Seaburg, head of sales trading at Cowen & Company. But he has a more bullish forecast.
“I think from a trading perspective here for the near term, it looks like it’s a level you probably want to step in and take a look from the long side,” Seaburg said Wednesday on CNBC’s “Power Lunch.”
Seaburg said he’d need to see more government data in coming weeks to see if the OPEC agreement is holding, but he cited hedge funds’ extreme positioning in crude oil as a positive for crude.
He said the fact that crude oil held up in Wednesday trading despite the build in inventory was a bullish near-term signal in the face of crowded long positions in the space. He said that meant investors are comfortable with where oil will be in the next three to six months. “They’re comfortable with that, therefore you probably get a trade here I think for the near-term to the upside,” he said.
The XLE, a popular energy exchange-traded fund that tends to rise and fall with the price of crude oil, is down more than 4 percent this year. ConocoPhillips, one constituent in the XLE, is set to break out of a range in which it has traded since December, said Andrew Keene of AlphaShark.com.
After seeing some unusual options activity from an institutional buyer of the April 52.5 calls (which would imply a rally of nearly 6 percent by April expiration) Keene said he would buy the COP April 52.5/55 call spread for 60 cents, or $60 per options spread.
Oil rebounds as US sanctions individuals and entities over Iran missile test
Sergei Karpukhin | Reuters
A worker stands next to a pump jack at an oil field Sergeyevskoye owned by Bashneft company north from Ufa, Bashkortostan, Russia.
Oil prices recovered on Friday after the United States announced sanctions related to Iran’s ballistic missile test, and on signs big oil producers are cutting output.
The Trump administration on Friday rolled out new measures against 13 individuals and 12 entities following Tehran’s ballistic missile test.
U.S. President Donald Trump said “nothing is off the table” in dealing with the country, which has seen its oil exports surge after the lifting of international sanctions last year under the previous U.S. administration.
“The ‘trumperament’ of the new U.S. president is being tested by Iran and soon maybe also by Russia and China,” Olivier Jakob, managing director of consultancy PetroMatrix, said. “And that is adding some geopolitical support to crude oil.”
Iran relationship a black swan for oil?
Brent crude futures were up 27 cents at $56.83 a barrel by 1:07 p.m. ET (1807 GMT). Brent was on track to gain more than 2 percent on the week, its first significant weekly rise this year.
Prices held their gains after oilfield services firm Baker Hughes reported U.S. drillers added 17 oil rigs in the last week. The count has been recovering since June and now stands at 583 rigs, compared with 467 rigs last year.
Comments by Russian energy minister Alexander Novak that oil producers had cut their output as agreed under a deal with OPEC, also helped to support prices, analysts said.
He said that 1.4 million barrels per day (bpd) was cut from global oil output last month as part of the deal.
Prices briefly pared gains after the official start of the day session, reflecting pent-up selling pressure following the U.S. jobs report for January, according to John Kilduff, founding partner at energy hedge fund Again Capital.
“The energy market did not necessarily like the weak wage component of the employment report. Gasoline demand is already weak, due to higher prices, so that hurts energy disproportionately,” he told CNBC.
News that Norway restarted a field that produces 100,000 barrels per day also weighed on prices, Kilduff said.
Analysts said oil’s advance could run out of steam quickly. PVM Oil Associates noted the market “is sandwiched between supportive OPEC-led output cuts and the bearish impact of a resurgence in U.S. crude production.”
The prospect of more oil output from Nigeria and also from other non-OPEC producers such as Brazil also looms.
“Record speculative length threatens to trigger a sharp price fall as unease builds amid the ongoing wait for a conclusive upside breakout,” Commerzbank said in a note.
— CNBC’s Tom DiChristopher contributed to this report.
We gobbled up the CME Group’s recent whitepaper on Crude Oil, loving all things Oil and Crude Oil futures related; and it is spot on (if not a little self serving) with the new dynamics in the energy sector due to increased supply and the US market’s ability to export that supply.
Remember that everything changed in the crude oil sector when the U.S. officially lifted the export ban on crude in 2015, making WTI Crude Oil (WTI = West Texas Intermediate) more on par with Brent Crude Oil. Before this period, Brent was used as the international standard, simply because WTI crude (which is US crude oil) wasn’t able to be exported (much less moved out of Cushing, OK very easily); while Brent was shipped around the world without hesitation. The CME’s in-depth article looks at just how much of an impact lifting the ban has had on the production, distribution, and price fluctuation for the crude oil business. Take a look at the price difference after the US lifted its ban on exporting crude oil, via the CME Group.
(Disclaimer: Past performance is not necessarily indicative of future results)
You can look at that chart and see the spread roughly at the same level now as when the ban was lifted. But a lot of that has to be buying the rumor, selling the fact amongst traders. The export ban surely didn’t happen overnight, it was months and years in the making. The CME Group suggests this ban lift came from a sharp rise in oil production, going from producing 5.1 million barrels a day in January 2009, to 8.8 million in October 2016. At one point, it was at its highest in March of 2016, producing 9.9 Million b/d. That’s quite a jump, and would definitely help explain why supply is one of the reasons prices have pushed lower over the past two years. The argument is sound… we’re drowning in excess supply of this stuff, pushing down prices, hurting US companies and jobs which has let us ship it out of the country where it is wanted.
If that big increase in supply was the impetus, what happens when supply increases yet again? The CME shows us that according to the EIA, we should expect production to grow by at least another 3 million more barrels a day over the next decade.
The interesting part of this graphic is the breakdown of the different types of ‘US Oil’, with the gray representing the traditional Texas, California, etc. oil rigs, the blue the newer traditional Gulf Of Mexico production – and all those other colors the shale and fracking revolution. You can see from CME’s graph that the major production in oil isn’t coming from conventional oil, but all the alternatives out there like “Tight” produced from shale, sandstone and limestone formations.
Wherever its coming from – this growth in US production, combined with the lift on the ban, has re-energized the debate over which oil contract is the standard in crude oil contracts. Here’s the CME:
The WTI-Brent spread has become a true indicator of value for the U.S. crude exporters. With the spread trading between $1 and $2 per barrel discount to Brent, traders say that increased volumes of WTI linked crude oils may flow to countries outside of the US and Canada. Part of this is due to the relatively low cost of freight with traders able to benefit from the ability to offer a US bound cargo and a now a US origin crude oil export cargo as a single transaction to a ship owner. Without US crude oil exports being permissible, ship owners were previously only able to pick up US bound cargoes and struggled to find any return cargoes leaving their vessels out of place for subsequent voyages. Shipowners now have the choice of a back-haul crude oil cargo or a refined product cargo as the US exports both. This tended to result in higher freight costs to a charterer due to the lack of economies of scale (for the ship owner).
Further, the recent expansion of the Panama Canal allows for enhanced shipping alternatives for cargoes to transit from the U.S. Gulf to the Far East. The significant discounts for WTI compared to Brent from the past are unlikely to re-appear as any mispricing would be quickly re-aligned through a rise in U.S. crude exports, which was not the case in the past when U.S. crude remained non-exportable.
Cushing, Oklahoma and Storage Issues
If you’re familiar at all with the physical side of oil, you know that most of it ends up in the Oklahoma town of Cushing. It’s where most of the Shale and Texas Oil is stored until shipped out, but the recent uptick and changing dynamics has spurred changed on that front, via CME Group.
The U.S Gulf Coast comprises approximately 55% of the U.S. crude oil storage capacity, while Cushing comprises 13%. The infrastructure investment in the U.S. Gulf Coast has transformed WTI into a waterborne crude, with extensive export capacity. All in all, the Houston market has become export- focused, with a terminal network with storage capacity of 65 million barrels and an additional 20 million barrels of storage capacity projected to come into service in 2017.
Once the contracts are sold through the auction, they can be bought and sold freely. At the end of the month, anyone holding a contract can use the storage space, which will hold the oil in either an above-ground storage tank or an underground cavern.
Of course, this is mainly for the players in the business….
So, who will use the oil-storage futures?
Producers, transportation companies and refiners all have exposure to commercial storage rates. A storage futures contract could allow those parties to lock in those costs ahead of time or trade them for profit.
Foreign companies might be interested too. Waterborne deliveries can be delivered to the Clovelly hub, along with oil from Texas and offshore Gulf of Mexico production.
Put this together and Cushing is no longer the crude oil storage capital is once was. Take a look at the change is U.S. working crude oil storage capacity.
What Does This All Mean?
Well, for one, it’s the CME tooting their own horn here, a bit. They would like nothing more than for the majority of Oil hedging and trading to be done on their own WTI Crude Oil Futures contract, versus the ICE’s competing Brent Crude Oil Futures Contract. What better way to convince you to trade it than point out how its supply is growing impressively both in sheer numbers, and in number of places producers can put it. With a more diverse storage geography in the US (plus the ban on exports being lifted), WTI can be sold to
Investing.com – Oil futures finished higher on Friday, logging a modest weekly gain with traders encouraged by signs that global supply is tightening in wake of a planned agreement by major crude producers to cut output.
On the ICE Futures Exchange in London, Brent oil for March delivery rallied $1.33, or about 2.5%, to settle at $55.45 a barrel by close of trade Friday.
London-traded Brent futures scored a gain of 4 cents, or approximately 0.1%, on the week.
Elsewhere, on the New York Mercantile Exchange, crude oil for delivery in March jumped $1.10, or around 2.1%, to end at $53.22 a barrel by close of trade.
For the week, New York-traded oil futures rose 5 cents, or nearly 0.1%.
Oil jumped on Friday after Saudi Arabia’s Energy Minister Khalid al-Falih, speaking at the World Economic Forum in Davos, said that 1.5 million barrels a day of the roughly 1.8 million in cuts pledged by OPEC and non-OPEC countries have already been taken out of the market.
The upbeat comments added to signs that the oil market is rebalancing.
Prices, however, finished off the session’s highs after data showed a sharp weekly rise in the number of active U.S. rigs drilling for oil.
According to oilfield services provider Baker Hughes, the number of rigs drilling for oil in the U.S. jumped by 29 last week to 551, the largest weekly increase since a recovery in the rig count began in June and the highest level in around 14 months.
The data raised concerns that the ongoing rebound in U.S. shale production could derail efforts by other major producers to rebalance global oil supply and demand.
In a monthly report issued this week, the International Energy Agency said OPEC production has slowed, declining by 320,000 barrels a day to 33.09 million barrels in December.
January 1 marked the official start of the deal agreed by OPEC and non-OPEC member countries such as Russia in November last year to reduce output by almost 1.8 million barrels per day to 32.5 million for the next six months.
The deal, if carried out as planned, should reduce global supply by about 2%.
Some traders remain skeptical that the planned cuts will be as substantial as the market currently expects.
While some major oil producers, such as Saudi Arabia and Kuwait, have so far showed signs that they are sticking to their pledge to cut back output, others, such as Libya and Iraq have ramped up production.
A monitoring committee charged with tracking adherence to the global deal is due to meet in Vienna for the first time on January 22.
Elsewhere on Nymex, gasoline futures for February rose 3.1 cents, or about 2.1% to $1.566 a gallon. It ended down about 2.9% for the week.
February heating oil tacked on 2.7 cents, or 1.7%, to finish at $1.645 a gallon. For the week, the fuel declined around 0.3%.
Natural gas futures for February delivery sank 16.4 cents, or nearly 4.9%, to $3.204 per million British thermal units. It posted a weekly loss of more than 6% on forecasts for warmer winter weather.
In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.
Traders will also continue to pay close attention to comments from global oil producers for further evidence that they are complying with their agreement to reduce output this year.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Tuesday, January 24
The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.
Wednesday, January 25
The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.
Thursday, January 26
The U.S. EIA is to produce a weekly report on natural gas supplies in storage.
Friday, January 27
Baker Hughes will release weekly data on the U.S. oil rig count.
FILE PHOTO: A worker checks the valve of an oil pipe at the Lukoil company owned Imilorskoye oil field outside the Siberian city of Kogalym, Russia, January 25, 2016. REUTERS/Sergei Karpukhin/File Photo
Traders said that oil received some support from a weaker dollar, which makes fuel purchases cheaper for countries that use other currencies domestically, potentially spurring demand.
After spending much of the second half of 2016 in an upward trend, the dollar has fallen around 2.5 percent against a basket of other leading currencies .DXY since its early-January peak.
The greenback is in particular focus this week as Donald Trump is set to take office as the next U.S. president on Friday.
“Oil pricing will be driven this week by the movement of the U.S. dollar rather than crude itself, with President-elect Trump’s inauguration … being the main event,” said Jeffrey Halley of OANDA brokerage in Singapore.
But traders said that doubts over full implementation of an announced crude output cut from major producers including the Organization of the Petroleum Exporting Countries (OPEC) and Russia were holding back oil prices.
OPEC has said it would reduce its output by 1.2 million barrels per day (bpd) to 32.5 million bpd from Jan. 1, and Russia as well as other non-OPEC members are planning to cut about half as much again.
However, Russian oil and gas condensate production averaged 11.1 million bpd from Jan. 1-15, two energy industry sources said on Monday, down just 100,000 bpd from December. Russia has committed to a 300,000 bpd cut during the first half of 2017 as a part of a global deal with OPEC.
Rising U.S. oil output is also preventing crude from climbing further.
Goldman Sachs said it expected year-on-year U.S. oil production to rise by 235,000 bpd in 2017, taking into account wells that have been drilled and are likely to start producing in the first half of the year.
Overall U.S. oil output stands at 8.95 million bpd, up from less than 8.5 million bpd in June last year and back at similar levels to 2014, when OPEC decided to start a price war against U.S. shale producers and sent the market into a tailspin.
(Reporting by Henning Gloystein; Editing by Sonali Paul and Christian Schmollinger)