By Jenny W. Hsu
Crude-oil prices lost some of their overnight gains in early Asian trade Friday as the market keeps a close eye on major producers' pledges to rein in production.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February traded at $53.72 a barrel, down $0.04 in the Globex electronic session. March Brent crude on London's ICE Futures exchange fell $0.3 to $56.86 a barrel.
Oil prices veered higher overnight after the U.S. Energy Information Administration reported a significant drawdown of 7.1 million barrels from stockpiles in the week of Dec. 30 due to lower imports, upending the market's expectations for an increase or a smaller decrease.However, the large growth in distillates and gasoline stocks -- of 10.1 million barrels and 8.3 million barrels respectively -- is considered bearish and a reflection of poor demand, said analysts at Societe Generale.
The data also showed U.S. production of crude grew by 4,000 barrels a day in the same week. The tepid growth is likely to due to the year-end holidays and will likely rise in coming weeks.
U.S. production is closely watched by the Middle Eastern producers who have fought fiercely for more than two years to protect its market shares from the U.S. shalers. To do so, they increased their production even though the rapid growth of unwanted barrels knocked oil prices to a 13-year low early last year.
The tactic eventually forced some less-competitive U.S. oil producers to close shop. As U.S. production waned, the willingness among the Organization of the Petroleum Exporting Countries to cut production and put prices first strengthened. In late 2016, the bloc and 11 non-OPEC members agreed to cut production by around 1.8 million barrels a day starting this month, capping the cartel's monthly production at 32.5 million barrels a day.
Saudi Arabia, the de facto leader of the cartel, took the lion's share of the cut. The WSJ Thursday reported the kingdom made good on its pledge by cutting its January daily production by 468,000 barrels.
The deal, if carried out fully, is expected to push Brent oil prices to the $60 per barrel range this year and $70 in 2018, said Gordon Kwan, the head of Asia Pacific gas and research at Nomura.
"Meanwhile, oil demand in both the US and China could surprise positively given President-elect Trump's fiscal stimulus and currency hedging in China against further yuan devaluation," he added.
Still, many analysts say it remains to be seen how effective the deal would be in mopping up the world's excess oil given Libya and Nigeria, the two OPEC nations exempt from the cut, are ramping up production.
"With output in Libya and Nigeria probably rising this month to some 700,000 barrels a day and 1.7 million barrels a day, respectively, we estimate that actual total OPEC output in January could be closer to 33.5 million barrels a day than to the official ceiling of 32.5 million barrels a day," said consultancy FGE in a note.
Nymex reformulated gasoline blendstock for February--the benchmark gasoline contract-fell 18 points to $1.6395 a gallon.
ICE gasoil for January changed hands at $495.25 a metric ton, up $6.00 from Wednesday's settlement.
Write to Jenny Hsu at email@example.com
(END) Dow Jones Newswires
January 05, 2017 22:51 ET (03:51 GMT)
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