U.S. oil prices dip on rising crude inventories, record output

Trading proceeds at lower volumes in parts of East Asia due to Lunar New Year holiday

The American Petroleum Institute reported late Tuesday that USA crude inventories rose by 2.5 million barrels last week at a time of weakening global demand, Morning Star reported.

The producers known as OPEC+ started cutting production by 1.2 million barrels per day (bpd) from last month to avert a new supply glut, and OPEC has delivered nearly three-quarters of its pledged cuts already, a Reuters survey showed last week.

International Brent crude futures were up 33 cents, or 0.53 percent, at $62.84 a barrel, down from a high of $63.63.

“With that in mind, keep an eye on [American Petroleum Institute supply] data later [Tuesday], followed by tomorrow's more definitive [Energy Information Administration] print, where a mixed consensus of expectations leaves room for stronger than anticipated draw to crude stocks to bring in some mid-week price support, ” he said.

Market participants have focused on signs of tightening global crude supply after the Organization of the Petroleum Exporting Countries (OPEC) and allies began an agreement in January to cut output. OPEC, excluding Iran, Libya and Venezuela, agreed to handle 800,000 barrels a day of those cuts.

Daniel Yergin, vice chairman of IHS Markit, agreed: "I think the oil price is moved by what happens with the overall financial markets; it means sentiment will have a bigger impact on the oil price, [and] a big surge in US oil production becomes bearish for the global market so you get more and more complicated feedback loops".

In contrast, a 2002-2003 strike against former President Hugo Chavez's government cut supplies and boosted prices to then outrageous levels above $30 a barrel, prompting Saudi Arabia to step in to avert a supply shortage. The officials also said those oil-producing nations would debate the proposal during the week of February 18 Vienna, with the potential for a final deal when they meet in April.

"The United States is now the number one producer of oil and natural gas anywhere in the world", Trump said during his State of the Union address to Congress. The political turmoil raises the risk of disruption to Venezuela's oil output. Short-term, speculative buying interest is being driven by the USA sanctions on Venezuela.

"Basically it's a pretty supportive report", said Phil Flynn, oil analyst at Price Futures Group in Chicago. Venezuela is an OPEC member and now holds the oil cartel's rotational presidency.

The oil industry generally believes the curbs will help to balance the market in 2019.

Elsewhere on Nymex, March gasoline US:RBG9 lost 0.4% to $1.426 a gallon, and March heating oil US:HOG9 declined by 0.5% to $1.898 a gallon.

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