Oil declines for fifth week as supply climbs

Posted June 27, 2017

South Korea's three oil commodity exchange traded funds (ETFs) have posted abysmal returns over the past month due to falling worldwide crude prices, a fund evaluation firm said Tuesday.

West Texas Intermediate, the US benchmark for the price of oil, was up 0.49 percent to $43.22 per barrel about 15 minutes before the start of USA trading.

OPEC, led by Saudi Arabia, finally gave up the fight for market share and reached a production cut deal in November 2016 to address the chronic global oil glut in order to boost oil prices.

Opec and other producers agreed to cut output by 1.8mbpd from January for six months, subsequently extended for a further nine months.

But so far, no commodity has come close to matching the affordability and efficiency of crude, meaning the market has a long way to go before it can abandon its focus on either benchmark; in the meantime, many analysts say the market is fundamentally changing in another way, specifically: USA shale as the dominant force undercutting the power once wielded by OPEC.

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The fundamental outlook appears weak, with USA shale drillers continuing to add extra rigs, despite the downturn in prices, but positioning data shows the risk of a short-covering rally is increasing.

During this period, the market ignored the fall in crude oil and gasoline inventories that were above market expectations.

The market is up slightly so far this week, but Brent and US crude oil have dropped for the past five weeks. "We might see a significant pop in short-covering if the USA inventory data turns out to be bullish", said Ric Spooner at CMC Markets. "It has moved a long way in response to that news, maybe we are getting to a point that there is upside risk to any good news".

Amid the rise in U.S. drilling activity, money managers cut net long USA crude futures and options holdings to their smallest long position since November.

Crude-oil futures carved out modest gains in Asia on Tuesday, but most investors are holding back bets until further drivers emerge. The contract rose 37 cents, or 0.9 percent, to $43.38 on Monday.

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WTI for August delivery climbed as much as $0.64 to $43.65/bbl on the NYME, and was at $43.48 in London.

"We don't think we're going to go below the low 40s".

Also, U.S. shale oil output is up around 10 percent since past year.

"Looking into the second half of 2017, we now doubt that demand growth will accelerate sufficiently", they wrote.

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