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Petroleum industry

Oil Prices Rise on OPEC Compliance, but Inventory Concerns Weigh

Strategic Insights

— 2 min read

Oil prices rose Wednesday on evidence of high OPEC compliance with production cuts, but an expected surge in U.S. oil inventories put the brakes on any rally. Crude oil futures rose as OPEC members reduced production by about 75% of the 4.2 million barrels a day promised in the final months of 2008, according to a Dow Jones Newswires survey. Despite the improved compliance rate, oil prices were held back by concerns about a significant increase in U.S. oil and fuel inventories, which could undermine the market's optimism about OPEC's efforts to stabilize prices.

Key Takeaways:

  • OPEC members have cut production by about 75% of the 4.2 million barrels a day promised in the final months of 2008, according to a Dow Jones Newswires survey.
  • The compliance rate is higher than seen in past cuts, but still 1.1 million barrels a day short of the promised reduction.
  • Oil prices rose as OPEC's reduced output is seen as key to preventing further declines in oil prices, as global demand has declined during the economic downturn.
  • The market is preparing for a report of considerable increases in U.S. oil and fuel inventories from the Department of Energy, which could undermine the market's optimism about OPEC's efforts.
  • The American Petroleum Institute reported an 8.1 million-barrel jump in oil stocks for the week ended Jan. 30, far more than the average 2.9 million barrels forecasted in a Dow Jones Newswires survey of analysts.
  • Oil demand is down by more than 800,000 barrels a day from a year earlier, according to the Energy Information Administration.
  • The API also reported a 2.1 million-barrel increase in gasoline inventories, compared with an average forecast of a 600,000-barrel build.
  • Distillate stocks, including heating oil and diesel, fell by 200,000 barrels, compared with an expected 1.4 million-barrel decline.

Statistics:

  • OPEC members have reduced production by about 3.15 million barrels a day (75% of 4.2 million barrels).
  • The compliance rate is 75%, higher than seen in past cuts, but still 1.1 million barrels a day short of the promised reduction.
  • Crude oil futures rose by $1.02, or 2.5%, to $41.80 a barrel on the New York Mercantile Exchange.
  • Brent crude on the ICE futures exchange traded 40 cents higher at $44.48 a barrel.
  • U.S. oil inventories are expected to surge by a significant amount, potentially undermining the market's optimism about OPEC's efforts.
  • Oil demand is down by more than 800,000 barrels a day from a year earlier, according to the Energy Information Administration.

Sources:

  • Dow Jones Commodities News via Comtex
  • Ed Meir with MF Global
  • Analysts with Tudor, Pickering, Holt & Co.
  • Brian Baskin, Dow Jones Newswires
  • Oliver Klaus in Dubai (Contributing to the article)

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