Data from the US Energy Information Administration (EIA) released on Wednesday showed crude oil inventories for the week ending November 13 at 489.5 million barrels, a drop from levels three weeks ago at 492.4 million barrels, but still higher than what was forecast by analysts.
Investors need to exercise caution also because stocks in Cushing, Oklahoma now (61.6 million barrels) is the highest in last several weeks. And, crude oil production in the US has been scaled higher. For the week ending November 13, the production was 10.9 million barrels, up from 10.5 million barrels in the previous week and about 10.3 million barrels per day in mid-September.
If production continues at this level, draw of stocks may fall in the coming weeks. Further, the pandemic situation is grim with increasing number of cases in the US and the Europe and the latter having imposed movement restrictions to contain the spread of Covid-19.
OPEC+’s meeting that finished on Monday announced continuation of the current level of oil production cuts (by 7.7 million barrels per day) for three more months, and from January reduce it by 2 million barrels per day to 5.7 million barrels per day according to a Reuters report.
With Libya demanding to be exempt from production cuts till the time its output stabilises around 1.7 million barrels per day, the market may continue to be burdened with supplies. Only, if the OPEC+ decides to continue production cuts beyond January, will the prices move higher from the current levels, say analysts.
The next meeting of the OPEC+ is on November 30 and December 1 when a final decision on products is likely to be taken. Market expectations are that OPEC+ may only deepen the production cut and not reduce it and do it for at least 3-6 months after January.
Some analysts BusinessLine spoke to believe that the market has already priced in delay in easing of production cuts by OPEC after January and that crude prices may only be range-bound from hereon. If there is increase in the spread of Covid-19 in the second wave in the West and Europe, demand may suffer.
As per the EIA report, drilling activity in the US may pick up pace in 2021. It expects the output to reach 11.3 million barrels per day in the fourth quarter of 2021. Thus, higher supplies too, may weigh on price. If Libyan output increases at a pace faster than expected by the market, it will magnify the fall.