Although a report from the American Petroleum Institute (API) released last night, showed the decline in the US oil reserves, oil prices have dropped. Last week US oil reserves have decreased by 2.2 million barrels. At the same time, stocks of gasoline have grown by 0.83 million barrels and distillate inventories - by 4 million barrels.
Earlier, oil prices rose sharply on the OPEC‘s decision to cut oil production by 1.2 million barrels, which is equivalent to about 1% of the world oil production. The agreement has become the first successful attempt to reduce oil production since 2008 and has led to the rise in oil prices by more than 15% during last week. This week, spot price of crude oil Brent has reached the level of 55.10 USD per barrel. However, oil prices started to drop. Futures for oil fell from the annual highs because of profit-taking by traders. Futures for gasoline fell by 1.4% to 1.5359 USD per gallon, while futures for diesel fuel fell by 1.2% to 1.6379 USD per gallon. Market participants are concerned that cartel-members will continue to increase oil production at least until the day when the agreement will enter into force. Saudi Arabia will probably wait till January and then reduce oil production to lower winter level.
Production of oil in OPEC countries has grown the new record highs in November. Saudi Arabia has lowered January prices for the Asian consumers as part of strategy to maintain its market share. On Saturday, a meeting of OPEC-members with the countries outside the cartel will take place. Russia will also participate in this meeting. It seems that OPEC expects that the other countries will reduce oil output by 600.00 barrels per day.
If this does not happen, oil prices will go down. If the agreement between OPEC and the other countries is reached, the price of oil will start to grow.
Today at 18:30 (GMT+3) US Department of Energy will issue weekly report on oil and oil products stocks in the US stores. It is expected that oil inventories will decrease by 1.132 million barrels. The decline in oil stocks usually supports oil prices.
However, now the agreement to limit oil production is the main driver of changes into the oil prices. The excess of supply over demand continues. The number of the active drilling rigs in the US is increasing, and the US President Donald Trump plans to lift restrictions on energy production.
The agreement to reduce output reached by OPEC may be under the threat due to the increasing competition for the market share.