U.S. West Texas Intermediate and international-benchmark Brent crude oil futures both closed lower last week, but the U.S. market absorbed a bigger loss. While the OPEC-led production cuts continued to underpin prices because of their ability to trim the excess global supply, the shift in trader focus to demand issues clearly outweighed their influence.
Crude oil prices rose at the start of trading last week, hitting their highest marks since November 21. Supporting prices early in the week were U.S. sanctions on Venezuela which helped keep investor focus on tighter global supplies. Prices were also supported by the news that oil supply from OPEC fell in January by the largest amount in two years, according to a Reuters survey.
Prices began to tumble and remained weaker throughout the week after the European Commission lowered its outlook for the Euro Zone economy and on renewed worries over a U.S.-China trade deal.
Late in the week, Brent crude oil received a boost on reports that the U.S. would not extend the exemptions to the countries allowed to buy Iranian crude oil.
U.S. Energy Information Administration Weekly Inventories Report
The Energy Information Administration (EIA) reported that U.S. crude stocks rose less than expected the week-ending February 1, while gasoline stocks increased and distillate inventories fell.
Crude inventories rose by 1.3 million barrels compared with analysts’ expectations for an increase of 2.2 million barrels. Gasoline stocks rose by 513,000 barrels, compared with analyst expectations for a 1.6 million-barrel gain. Distillate stockpiles fell by 2.3 million barrels, versus expectations for a 1.8 million-barrel drop, EIA data showed.
This week, we’re looking for a mostly sideways to lower trade with the crude oil market underpinned by the OPEC-led production cuts and the U.S. sanctions against Venezuelan oil exports. Putting a cap on the market will be demand worries over slowing global economic growth and concerns over U.S.-China relations. The return of stock market volatility especially to the downside could also have a negative influence on prices. Another factor weighing on oil prices this week was a strong dollar.
The wildcard this week will be the impact of rumors that the United States will not renew the exemptions to the sanctions against Iranian oil exports. According to reports, U.S. Special Representative for Iran, Brian Hook, says Washington has no plans to extend waivers when the exemptions expire in May. “Iran’s oil customers should not expect new waivers to U.S. sanctions in May”, the top State Department official reiterated.
This news is particularly bullish for Brent crude oil because it will lead to a further reduction in crude oil supplies. This will help widen the spread between Brent and WTI crude oil.
This article was originally posted on FX Empire
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