US oil prices inch up, see limited upside

22-Mar-16

Oil prices rose at the beginning of this week, as data showed a drawdown at the Cushing, Oklahoma delivery hub for U.S. crude and ahead of front-month contract expiry in the U.S. crude futures, as per data.cnbc.com. The market's upside was limited by concern that U.S. oil drillers could ramp up output again after a two-month long recovery in crude prices. Brent crude futures for May delivery, the front-month, inched up to US$41.5 a barrel, while US crude futures for April, which expired on Monday, settled at US$39.9 a barrel. Crude stockpiles in Cushing fell 570,574 barrels to 69.05 mln in the week to March 18, traders said, citing data from market intelligence firm Genscape. Cushing inventories had previously risen toward 70 mln barrels, causing market participants to fear they could hit capacity. On Friday, data from oilfield services firm, Baker Hughes, showed US energy companies added one oil rig last week after 12 weeks of cuts. Analysts generally agreed it was early to read too much into that rise, since oil rigs had fallen by two-thirds over the past year to their lowest since 2009. Still, there were signs the drop-off in drilling was stabilizing after a 50% rally in crude prices since February. "The higher prices go in the current recovery rally, the higher the likelihood that U.S. producers are going to build their hedge portfolios, which could then result in U.S. oil production not declining as much as what the current forecasts are showing," said Dominick Chirichella, senior partner at The Energy Management Institute, New York. Some U.S. shale oil producers, including Oasis Petroleum and Pioneer Natural Resources, are activating drilled but uncompleted wells (DUCs) in a reversal in strategy that threatens to bring more crude to a saturated market and dampen any sustained rebound in prices.