On Thursday, oil prices dropped before a meeting with oil producers aiming to continue production limits to clear excess in supplies that has affected the market for the past three years. Ministers from the Organization of the Petroleum Exporting Countries, Russia and other producers are to meet on Friday to contemplate extending output reductions beginning in January.
It is expected until March 2018 that OPEC and their allies have agreed to reduce output by about 1.8 million barrels per day, with the intent to empty inventories. It is now expected for OPEC to extend this deal to possibly the end of 2018.
OPEC’s efforts have been hindered by higher production in other parts of the world, including the United States. Recent hurricanes have increased crude oil inventories in some parts of the U.S. as refineries have been shut down due to flooding.
For the third straight week, U.S. commercial crude oil stocks C-STK-T-EIA climbs. U.S. oil production has reached 9.51 million bpd, up from 8.78 million bpd immediately after Hurricane Harvey struck the U.S. Gulf Coast.
According to traders, the U.S. crude received some reinforcement from a compelling lure in gasoline stocks from 2.1 million barrels to 216.19 million barrels. The structure of oil futures prices suggests OPEC production cuts are beginning to have an impact, analysts say.
In recent months, front month Brent futures have risen sharply more than forward prices. This has changed the Brent price curve changing it to what trader’s call “backwardation”. Meaning when prices for immediate delivery are higher than prices for later barrels.
This is an indicator of a narrowing market as it is encouraging the instant sale of oil rather than storing it.