Oil fell for a third straight session on Wednesday as investors locked in profits from recent gains while looking ahead to inventories data from the United States due later in the day for pointers on where prices will head next.
Brent crude for May dropped 56 cents, or 0.8 percent, to $66.96 a barrel by 0414 GMT, while US West Texas Intermediate crude for April was at $63.56 a barrel, down 45 cents, or 0.7 percent.
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Prices gained support last week from the decision by the Organization of the Petroleum Exporting Countries (OPEC) and allied producers – collectively known as OPEC+ – to largely maintain production cuts in April. They then initially jumped on Monday, with Brent rising above $70 a barrel, after attacks by Yemeni Houthis on Saudi Arabia’s oil heartland, before settling back as the alarm subsided.
“It’s a realisation that there was no impact on supply from the attack,” said Virendra Chauhan, a Singapore-based analyst at consultancy Energy Aspects said.
A combination of factors including top importers China and India drawing crude from storage at current high prices and expectations of a return in Iranian supplies have also cooled prices, he added.
Oil is still up more than 30 percent this year as the market tightens amid output cuts from Saudi Arabia and OPEC+, and as the demand outlook improves with the rollout of COVID-19 vaccines.
Top consumers suffer
Higher prices may be good for oil producers, but are forcing the world’s top consumers to rethink their strategies.
“Demand is expected to improve and supply is continuing to shrink, but some are feeling the burden of this massive rally,” said Kim Kwangrae, commodities analyst at Samsung Futures Inc. “It’s a mixed market.”
Elevated prices and reduced barrels from Middle East producers due to OPEC+ curbs are accelerating India’s push to diversify its sources of crude and pursue alternative energy, according to the chairman of Hindustan Petroleum Corp. The output cuts are also impacting the shipping market, with tanker owners losing money hauling oil on a key route to China.
In the US, crude inventories rose by 12.8 million barrels in the week to March 5, according to trading sources, citing data from industry group the American Petroleum Institute. Analysts had expected a build-up of about 800,000 barrels in a Reuters poll.
Official figures from the Energy Information Administration (EIA) are expected Wednesday at 10:30am Eastern US time (15:30 GMT).
Meanwhile, higher prices are expected to bring more US crude supplies back online.
US crude production is still expected to fall by 160,000 barrels per day (bpd) in 2021 to 11.15 million bpd, the EIA said on Tuesday, but that is a smaller decline than its previous monthly forecast for a 290,000-bpd drop.
The OPEC+ grouping may become the victim of its own success, analysts at EFG bank said; higher crude prices because of their adherence to agreed cuts could incentivise US producers who are not part of the group.
“The current WTI oil price is well above the level needed to incentivise a substantial increase in US production, which according to surveys by the Dallas Fed and the Kansas City Fed stands at around $56 per barrel,” EFG said.
“The longer it remains above this threshold, the greater the incentive for US and other non-OPEC+ producers to increase production.”