Markets

Oil drops as global economic concerns grip market

Oil drops as global economic concerns grip market

Oil steadied on Thursday as growing expectations that global supply could fall significantly short of demand this year lent support, offsetting the negative impact of a rise in United States inventories.

US West Texas Intermediate (WTI) futures were at $55.13 per barrel, down 13 cents, or 0.24 percent, from their last settlement. The benchmark earlier fell to a session low of $61.05.

U.S. crude oil refinery inputs increased during the week ending February 1, the U.S. Energy Information Administration (EIA) said on Wednesday.

Distillate fuel inventories last week shed 2.3 million barrels and production averaged 5.1 million barrels per day.

U.S. distillate stocks fell by 2.3 million barrels, while inventories of other refined fuels dropped by 2.9 million barrels.

"Distillate demand increased sharply last week due to the extreme cold weather, which contributed to the declining distillate stocks", Commerzbank analyst Carsten Fritsch said.

USA oil imports from Opec countries have dropped to five-year lows as the oil producing cartel cuts output, while United States domestic production grows.

Providing global markets with price support are supply cuts led by the Organisation of the Petroleum Exporting Countries (OPEC) aimed at tightening the market.

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The producers, known as OPEC+, began cutting production from last month to avert a new supply glut and OPEC has delivered nearly three-quarters of its pledged cutback already.

US sanctions on Venezuela's state oil company could also lift prices, though they have yet to trigger any sharp increase.

Washington said last week that after April 28 foreign companies would not be able to conduct business with Venezuelan state-run oil firm PDVSA using the US financial system, effectively banning them from paying in USA dollars. Elsewhere, supplies from OPEC face heightened uncertainty after Libya's eastern leader Khalifa Haftar said his forces have taken control of the country's largest oil field.

However, a stronger U.S. dollar limited gains on Wednesday.

Crude is unwinding yesterday's rally, as economic concerns rise up once more and a stronger dollar provides headwinds, Matt Smith, director of commodity research at ClipperData, told UPI.

Global economic worries have weighed on market sentiment in recent days, offsetting support from signs that global supplies are tightening.

The oil price is showing a 20 percent gain so far this year.

With a nervous market, traders are focused on the U.S. State of the Union address by President Donald Trump. Prices are likely to remain rangebound, or drift sideways to lower until the US and China reach a trade deal. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy.