The Organization of the Petroleum Exporting Countries has so far surprised the market by showing record compliance with oil-output curbs, and could improve in coming months as the biggest laggards – the United Arab Emirates and Iraq – pledge to catch up quickly with their targets.
But while the November 30 agreement to reduce production prompted oil prices to rise $10 a barrel, they have been trading in a narrow $3 range in recent weeks.
Benchmarks Brent and West Texas Intermediate crude oil on Tuesday traded several cents on either side of the previous day’s close. By 1130 GMT, Brent was 16 cents lower at $55.77 a barrel while the U.S. benchmark was 9 cents lower at $53.96.
“Oil is well and truly stuck and the falling futures volumes does not indicate that we have much of a bull-bear fight either,” Saxo Bank head of commodity strategy Ole Hansen said.
“Having failed on a couple of occasions to break higher it is only natural to see it correct lower. I’m looking for a retracement to $55 on Brent and $52.70 on WTI.”
OPEC agreed to curb output by about 1.2 million barrels per day (bpd) from January 1, the first cut in eight years.
In addition, 11 non-OPEC oil producers have promised to cut their output – Russia reduced production by 124,000 barrels per day this month compared with October levels, Interfax reported on Tuesday citing a source familiar with the data.
Several analysts noted record high bets on rising Brent and WTI prices, as showed by data from the InterContinental Exchange and the U.S. Commodity Futures Trading Commission (CFTC).
“Increasingly, the high degree of speculative interest is hanging over oil prices like the sword of Damocles. If financial investors were to unwind their positions, a sharp fall in prices would be on the cards,” Commerzbank said in a note to clients.
Oil industry and OPEC country sources said Saudi Arabia wanted crude prices to rise to $60 a barrel this year, a level it saw as encouraging investments but not spurring a fresh surge in U.S. shale production.
But a report from consultancy Rystad Energy issued earlier this month said the break-even price for U.S. shale oil producers fell last year to an average $35 per barrel.
U.S. producers boosted crude production to over 9 million bpd during the week ended February 17 for the first time since April 2016, according to federal data. U.S. drillers were operating 602 rigs last week, the most since October 2015, energy services firm Baker Hughes said on Friday.