U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are under pressure on Monday with the U.S. contract weakening the most. Traders are saying that the pressure is being fueled by worries over increasing U.S. production after a report on Friday showed an increase in drilling activity in the United States. The markets continue to be underpinned by the OPEC-led production cuts and U.S. sanctions against Venezuelan exports.
At 06:50 GMT, March WTI crude oil is trading $52.23, down $0.49 or -0.93% and April Brent crude oil is at $61.85, down $0.25 or -0.40%. The WTI futures contract is down more than the Brent futures contract because of rising U.S. supply and the possibility that the U.S. will not extend exemptions against the Iranian sanctions.
Traders are also saying that a fire at an Illinois refinery is limiting demand for WTI crude oil because of the shutdown of a large crude distillation unit. This shutdown could decrease demand by 120,000 barrels-per-day (bpd).
According to Baker Hughes, U.S. energy firms last week increased the number of oil rigs operating for the second time in three weeks. The report released on Friday showed producers added seven oil rigs in the week to February 8, bringing the total count to 854.
Concerns are also being raised about the sustainability of the OPEC-led supply cuts which include Russia. According to Reuters, the head of Russian oil giant Rosneft, Igor Sechin, has written to Russian President Vladimir Putin, saying Moscow’s deal with OPEC to withhold output is a strategic threat and plays into the hands of the United States.
Participants in the deal have pledged to cut output by 1.2 million bpd, beginning on January 1 and ending at the end of June. OPEC and its allies will meet on April 17 and 18 in Vienna to review the pact.
Until we start to see some inventories numbers this week, the biggest influences on crude oil prices are likely to be concerns over U.S.-Chinese trade relations and trader appetite for risky assets. Trade talks between the two economic powerhouses are set to begin this week, but the two parties are said to be far from reaching a deal. Furthermore, President Trump and President Xi Jinping are not expected to meet until after the March 2 deadline, which raises the possibility of increased tariffs on China.
Sellers seem to be taking control of the trade which means we could see a break over the near-term into a value area on the charts. Optimistic traders are banking on the OPEC-led production cuts and the Venezuelan sanctions to limit supply over the short-run and stabilize prices.
Please let us know what you think in the comments below.
This article was originally posted on FX Empire
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