US oil prices fell on Friday after official data released late on Thursday showed stockpiles rose last week for a seventh straight week, although losses were muted as inventory growth was well below expectations. There were also signs that traders are starting to shift crude stored on tankers in Asia and tanks in the US.
US West Texas Intermediate was down 16 cents at $54.29 by 0728 GMT. WTI was on track for a weekly gain of about 1.6 percent, which would be its biggest increase over a week this year. Brent crude was down 19 cents at $56.39 and was on track for a weekly gain of about 1 percent. US crude inventories rose by 564,000 barrels in the week to Feb. 17, up for a seventh week, although below analysts’ expectations for an increase of 3.5 million barrels, the Energy Information Administration (EIA) said.
The Organization of the Petroleum Exporting Countries and producers including Russia have pledged to cut production by around 1.8 million barrels per day (bpd) to tackle a global glut that has kept prices depressed since 2014.
While OPEC appears to be sticking to its deal, producers that were not part of the deal, particularly U.S. shale drillers, have increased output, driving the growth in inventories in the United States, the world’s biggest oil consumer.
“Current oil prices are neither sustainable for OPEC or the industry,” AB Bernstein said in a note on Friday. “As such, inventories will have to fall, which we expect will be clearer in the spring after the seasonal build.”
This is starting to happen in the U.S., where traders are draining the priciest storage tanks as strengthening markets make it unprofitable to store for future sale and cuts in global production open export opportunities.
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In Asia, traders are selling oil held in tankers anchored off Malaysia, Singapore and Indonesia.
More than 12 million barrels of oil has been taken out of storage in tankers berthed off Southeast Asian countries this month, shipping data in Thomson Reuters Eikon shows.
Traders have been benefiting from a market feature known as contango where prices for later delivery are higher than those for immediate dispatch. But the future premium is falling and future prices may slip below spot prices, known as backwardation.
“Tightening fundamentals will push the crude market into backwardation in the coming months,” BMI Research said in a note. This “will benefit participants in the paper market but hamper the profits of oil traders who are unable to exploit the cash and carry arbitrage.”